Here is the secret: YOU CAN’T BE PERFECT!! It is impossible to always be right and always be perfect when trading or investing. And the sooner you accept that, the sooner you can begin to develop an appropriate approach to the market.
The market is a non-linear environment, so one has to approach it from a perspective of probabilities. That means it is absolutely inevitable there are times you are going to be wrong. But, the most important question is if you have a way to know when you are wrong early enough to be able to adjust and minimize your loss when you are wrong.
Too often I hear people tell me that they had intended to trade a certain stock, but when the stock moved against them and they held too long, they then became an “investor.” These same people will declare the age old, but absolutely ridiculous, adage that “it isn’t a loss if you don’t sell it.”
I am sorry, but these perspectives are absurd. It means that this person either did not have a plan before they entered the trade (or they did not stick to their plan), or it means that they simply had no way to objectively determine that they were wrong in their initial assessment of the stock, and did not recognize the error of their ways until it was too late.
In either case, it highlights several things that every single investor or trader must determine before they put their money to work in the market.
First, you must have an entry, a target, and a stop out point on every single trade or investment you make. This is a simple risk management perspective and it will make sure that you follow another age old adage in the market—let your winners run and cut short your losses early.
Second, in order to determine your entry, target, and stop out points, you need an objective methodology upon which to rely. And, that is what we provide with our Fibonacci Pinball method of Elliott Wave analysis. You can read some background information about it in this six-part series I wrote some time ago.
Now, let me address my short term perspective on the S&P 500. My last update outlined my expectation for the pullback/consolidation we are seeing right now:
“In the meantime, the market has been playing almost perfect Fibonacci Pinball (our method of applying Elliott Wave analysis), and has now rallied to our next resistance target from my last article. And while we still can extend a bit higher before that pullback begins, I'm now expecting that we can begin a pullback at any time now.
"At this point in time, if we are indeed heading up to the 4900+ region in the coming weeks, I would not expect that the next pullback would break down below the 4700SPX region. And, as long as we hold over that support in the coming week or so, then my next upside target is minimally in the 4860SPX region off the next pullback towards 4700SPX.”
And, not much has really changed since that update, as we have certainly seen the pullback/consolidation I was expecting in my last update. Support is now 4710-21SPX. And, as long as we hold that support, my next minimum upside target is in the 4860SPX region.
But, I want to again highlight my larger degree expectation. I still think we can see a 7-10% pullback in the market in early 2022. While my preference is to begin that pullback from a bit higher region than where we are right now, I do want to note that we have approximately 100-150 points of potential upside, whereas the downside risk is 300-350 points. So, clearly, risks have now risen and will continue to rise as we move towards the 4900SPX region.