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Stock Market Analysis: 3 Volatile Facts

Published 11/24/2019, 05:35 AM
Updated 07/09/2023, 06:31 AM

One of the most important things we need to be aware of when trading right now is the potential for volatile movements. We have things going on now that may cause the markets to become very choppy, volatile and non-deliberate in how it is moving. While we want to have some volatility in the market, we need that volatility to be good. For example, if the price action is too big, this can make for a difficult market to enter and exit. On the other hand, if the price action is too small, this can make for a market that is difficult to make money in. What we would prefer to have is a market that is trading in a deliberate fashion, where prices are making adequate swings to the upside as well as the downside. A deliberately trading market is one where we can count on the prices moving in a consistent pattern. This makes it much easier to identify when to get into a trade and when to exit.

There are 3 things that may be causing this choppy, volatile and non-deliberate trading pattern right now. First, we are approaching the holiday season where the markets will be closed. We will see the first this next week as the market takes time off for the Thanksgiving holiday. Next, we will enter the month of December where we will have market closures for the Christmas and New Year’s holidays. While this is a good thing and a good time to evaluate our trading, it does make trading a bit more difficult. Much of it is just due to the lower amount of trading that is going on as traders take time off. The second thing that the market seems to be concerned about is what is going to happen with the US-China Trade agreement. It seems like it is and on again, off again situation where no one knows what will happen. This should be a temporary thing but until it is settled, expect more volatility. Finally, the impeachment hearings and possible trial. This may not be settled soon which is likely to cause investors to remain nervous about what it will do to the economy. Whether or not anything comes of this, it will at least cause the markets to remain a bit uncertain for the immediate future.

So, What do we do? Well, the simple answer is to take some time to evaluate what we are doing with our risk management. While we don’t want to stop trading, we do want to be able to protect what we have. This might mean that, during this time of added volatility and non-deliberate price action, we lower the amount of risk we are willing to take on our trades. Keeping our risk exposure at a lower level during this time of the year will also help us control our emotions as we trade. As things settle down, as they generally do, after the first of the year we should be able to see the markets become a bit more deliberate.

While there is not a lot of major news events scheduled to be reported this next week, it is important to remember that the markets will be closed on Thursday. The stock market will also be closing early on Friday November 29, 2019. Make sure you plan accordingly with all your trading.

Today we are going to look at what happened to the Dow Jones 30 Futures on the weekly chart:

This week the DJ-30 ran into new all-time highs and then slowed down a bit as the weekly candle shows red. This down candle was the first real bearish candle in about that last 2 months. On this chart we have drawn several lines below the price which represent the price movement of the candles above them. As the market cycles up and down the price on the chart will form swing highs and lows. Notice that the last line may be getting ready to form a new swing high. This could indicate that the price action is ready to begin another downswing to form a new swing low over the next few weeks. We will continue to monitor this to see if we can identify the new swing down. Of course, it is possible that the bullish move continues so we don’t want to get too caught up in guessing what might happen, we only want to trade on what we are seeing.

Take some time to review how you are going to approach your trading during these holiday times so you can be confident in what you are doing.

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