Trust Resistance Over Your Gut
One recent morning in MTM’s group coaching class, we observed the S&P 500 ETF (SPY) gapping up to a previous resistance level. As I often remind traders who follow technical analysis, resistance like support has a much better chance of not letting the underlying through that level. I like to say there is about a 70% chance it will hold. So, I asked the traders in group coaching class, what has a better chance of happening after the gap higher?
Odds on Your Side
It was the first day of November and the SPY gapped up to around the $390 level as seen below.
What happened next should not come as a surprise. The ETF was unable to move through the resistance level and retreated for most of the session. I find that too many traders will chase that bullish gap only to find out that the stock or market will retreat at that resistance level. It may not be a 99% chance, but a 70% chance seems like a pretty good percentage to me.
Odds vs. Emotions
It is easy to get caught up in the emotions that accompany trading. I get that. But if you trust the odds and not your gut, I promise you will have a better success rate. Of course, this is easier said than done, especially when those candlesticks are active. But before you do anything trade-wise, ask yourself: What has a better chance of happening? If you pause to think about that question and don’t trade impulsively, you are on the right track.
John Kmiecik, Market Taker Mentoring