A lot of Broken Charts out there – January 20, 2022


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This is Scott with your Chart of the Day. I will be honest with you, there are a lot of ugly charts in this market. I could rail through a couple of them right now, Apple ( NASDAQ: AAPL ), blah, Amazon ( NASDAQ: AMZN ) blah, Alibaba ( NYSE: BABA ) has been blah for a while. So we will just stick with the SPY ( NYSEARCA: SPY ) because I really want to talk about how I trade and how I stay safe in this market.

Dan and I did a webinar yesterday with members and we talked about some strategies that I use to really just kind of avoid a lot of volatility in this market. One of those strategies is strictly just focusing on the SPY ( NYSEARCA: SPY ) and the 50-day moving average. So if price drops below the 50-day moving average here on the SPY ( NYSEARCA: SPY ), chances are I am not involved in the market. I have typically been stopped out of my stocks by then and I am waiting for some sign of reversal.

Sometimes that means that I end up having to buy higher. But when I am buying, a lot of times that keeps me in kind of a safer position because I have a level to define my risk off of. So I am going to play a clip from our live webinar that we did yesterday for premium Stock Market Mentor members. And then after come back and give you some strategies for being open-minded during times like this.

Webinar Clip
Scott: This is how I try and stay safe in the market. As you can see from this chart when I want to get aggressive in the market when I want to get long stocks typically is when the SPY ( NYSEARCA: SPY ) is above that 50-day moving average. And when the SPY ( NYSEARCA: SPY ) is below that 50-day moving average, that’s really the time where I want to be hands-off.

And so if you are new to trading or just trying to figure out why you keep losing money in this chop the highest probability setups for me come when the SPY ( NYSEARCA: SPY ) is above the 50-day moving average and so that is what I use as my guardrail. You know Dan, you are talking about getting those account higher lows, as you are saying, you want your account to have higher highs and higher lows. And so the way that I protect my higher low from becoming a lower low is just by using that 50-day moving average as my account guardrail.

Dan: I think those are great rules and great methods of making sure that you are staying on the right side of your equity curve. Guys, listen to what Scott is saying. How long have you been working with me, Scott?

Scott: since 2018.

Dan: It’s been that long? Wow!

Scott: I think so, I’ve lost track, I’ll be honest.

Dan: Anyway, Scott has grown so much, I would say that I am really proud but it really wasn’t any of my doing, he works his butt off. If you want to be really successful at trading you have to work your butt off too, you really, really do. You can’t just say I want to be a good trader. Okay, great, I want to quarterback for an NFL team and break all kinds of records, it isn’t going to happen, I missed my window.

And so, you need, not just a desire to be successful, you need a burning desire. It’s the kind of thing that you are thinking about this stuff all day long, It doesn’t have to be at the forefront of your mind but it’s back there rattling around in your brain someplace.

Scott: Okay, so as Dan said, it takes a lot of hard work to be a consistently profitable trader. And it took me years to develop a strategy that worked for me. And if you are struggling in this market then chances are, you need to focus on a strategy that works for you. When the market is whippy and choppy like this, this is a great time for you to study your past trades, look at the entries that you made that were successful, and the entries that you made that weren’t successful, and compare the two. Compare the two chart patterns. Compare the entries to each other.

Another note that I want to pass along in this market is not to get overly bearish for too long. Now yes, the market is not in great shape and it could not be in great shape for quite some time, we don’t know. But I know that is really easy to get stuck into a narrative whether it is a really bullish narrative or whether it’s a really bearish narrative when price is confirming that narrative.

And so as we get closer to the 200-day moving average here on SPY ( NYSEARCA: SPY ) I just want to stay open-minded to buyers coming in and potentially supporting price with some sort of base of consolidation. So that is what I will be looking for as we bump around the 200-day moving average here on the SPY ( NYSEARCA: SPY ) and on QQQ ( NASDAQ: QQQ ).

Now, it’s not because I believe that the market can go lower, I certainly know it can. And I lived through and traded through this fall from back in March of 2020. So I definitely know that things can come off the rails really quickly. And so if I am focusing on being bullish when SPY ( NYSEARCA: SPY ) is above the 50-day moving average, I don’t have to worry about catching any bottoms. I just have to be open-minded to price stabilizing and getting back above that 50-day moving average.

So that is what I would focus on in this market. I would just focus on stocks that are able to get back above their 50-day moving average because that is a key institutional moving average. And if stocks that you are looking at can’t get above, can’t hold above, can’t stay above the 50-day, then they are not being supported by institutions. Those are just a couple of tips that I hope you find are helpful to navigate this market.

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