The S&P 500 finished Wednesday nearly 150 points above Monday’s early lows. It is truly amazing how much ground the market can cover when it sets its mind to it.
But now that the crowd is finally breathing a sigh of relief because “the first selloff of 2022 is already over,” is it time for savvy traders to start getting nervous?
As I wrote earlier this week, first bounces have high failure rates. And this bounce is not any different. When everything starts feeling easy is when the market tends to pull the rug out from underneath us.
But just because this week’s bounce could fail doesn’t mean buying it was a mistake. Those of us that got in midday on Monday are sitting on a healthy profit cushion. That gives us a lot of margin to protect ourselves in case this rolls over. In fact, this trade has progressed to the point my trailing stops are already above my entry points. Even if this bounce fails, I could be “wrong” and still turn a profit. (Gotta love it when even your bad trades make money.)
Low risk, high reward. These are the setups we live for. By starting small, getting in early, and keeping a nearby stop, we were able to jump aboard this bounce in a low-risk way.
And if you missed Monday’s bounce, don’t worry, another one will be along soon enough, especially if Monday’s bounce fails. You just have to keep your eyes open and be willing to move when everyone is paralyzed by fear and indecision.
Tesla's (NASDAQ:TSLA) latest bounce off of $1k support is also progressing nicely. Sell the pullback from $1,200 at our trailing stop and buy the next bounce off of support. What’s not to like about that?
Sure, most owners held through the dip and are just fine. But that’s only because prices bounced off of support. What happens when prices don’t bounce?
There is no reason to hold a pullback if we don’t have to. For independent traders like us, getting in and out is so easy, there is no excuse not to.
Because you know what? One of these dips won’t bounce and that will make all of the extra effort worthwhile. Just ask the long-term holders of GameStop (NYSE:GME), Peloton (NASDAQ:PTON), Zoom Video (NASDAQ:ZM), and DocuSign (NASDAQ:DOCU) what that feels like.