The Daily Note - $DJIA $SPX $NDX - Taking A Chance On Tops And Bottoms

I've spoken about taking chances before and here once again when the markets seem to be topping it's those that take chances that get rewarded; or so it seems.

Not everyone does well chasing tops or grabbing bottoms; my trading style is different yet I certainly admire those who do and do it well. Trading tops and bottoms requires a certain stamina and a certain daring. More often than not, the market can turn against your direction rather quickly so taking profits too is a challenge and the style can become a scalping game.

The major challenge in this style is to figure the top or the bottom of a direction, which in itself is a major study. Knowing your charts is crucial in any trade, but recognizing tops and bottoms requires mastering it. It is not to say that you will not get it correct many times, but it takes years of observation too, to see it unfold. Then also, when the time is right, the question becomes whether to take that chance and risk the loss if you're not correct because as I said, chancing a reversal has more probability of being wrong for the time being.

I say time being because as we go higher like in the Dow30 (DJIA) or the S&P500 (SPX) we do not know how high is high enough for most traders and investors. Being exact is difficult even with excellent charting because we only know that somewhere it will top and reverse, for short or longer term. First consensus has to be reached which for day traders one day is enough and for trend traders a longer term is needed and preferred, but in either case your conviction is tested.

Stamina is required to stay with the flow of a trade even if you are on the "right side" but your conviction gets tested each time a trade turns against your direction and when your only "comfort" is having a set stop. Loss in any trade is painful but, in order to get those big winners on a direction reverse, traders have to take them and minimize them.

Where you set your stop is how you will manage most of these trades, as limiting loss is crucial and more wrong trades than right trades can turn into major losses if not managed well. So if you have the stamina, the daring and are able to manage your loss well, this may be a style you prefer and remember that chances are only given to those who take them.

The Daily Pick - DJIA, SPX, NDX

Below you may find the video.