Behavioral Market Changes

Just like the weather changes from Summer to Fall, so does the market. The markets behave differently throughout the seasons by default, but they also behave differently under a multitude of fluctuating conditions.

The markets are also susceptible to dip and rise at the drop of a dime – aka, market influencing news. We’ve all seen those random tweets from former president Trump send the markets plummeting and vice versa. The behavior changes, be that for a short period of time, it does change.

Key is to understand this is happening and take action. Waiting for things to get back in your favor is not an actionable plan – that’s hope and hope is not a position any trader should ever find themselves in.

$OSTK showed us what a behavioral change in an individual security looks like during the pandemic days. After its 2000+% run off then March lows, the online retailer finally ran out of steam. It’s tough for bulls to ask for much more out of stock than a 2000+% run to the upside.

Let’s be clear, we’re talking about real companies here, not penny stocks that get pumped up 4-digit percentages on a weekly basis; we leave that for the herd chasing, Robinhood trading newbies.

When a security begins to shift, there are signs to look for. You’ll be able to see levels clearly get rejected where they never rejected before. The backside of a move is a thing of beauty. At first, the bulls that bought at the top, will fight. They’ll continue to try to justify their bad entries and add to their losing positions. After they reach their breaking point, a deep behavioral change occurs. This further puts the nail in the backside coffin. Behavior continues to shift and get deeper in the opposite direction.

This is when the bears really lean into their positions. Behavior changes more.

This scenario is a rinse and repeat.

You don’t need any indicator to tell you something is overbought or oversold. The footprints on a chart tells all the story any trader ever needs to know.

The behavior of a security that has gone parabolic or has stair-stepped its way to a 4-digit percentage gain, will clearly show you when it’s done; all by itself – no (insert indicator) necessary.

Of course, the behavior of an individual security, industry, sector is uniquely their own. It takes time to understand each of their idiosyncrasies during particular times throughout the year.

What’s hot today, may not be hot tomorrow. Keeping your pulse on market behavior will bring insight and deeper conviction in your trade ideas.

Flowing with the Street, means to not fight trend. When the behavior of a sector shifts, so should you; otherwise, you’re fighting the market current. When the behavior of an industry shifts, so should you. When the behavior of a security shifts, so should you.

Trading isn’t hard, most traders just make it hard. Everyone is so eager to start clicking the buy button, they don’t even realize they’re stepping in front of a tsunami!

Take a step back, look at the flow of the market, take note of any behavioral shifts, and THEN deploy capital.

This is professional trading. This is flowing with the Street.

About The Street Trading

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Day Trading | Swing Trading | Position Trading - It all comes down to managing risk and market psychology.

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