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

 


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