Trading thru the holidays
The sideways action in the overall markets still has them chopping around and just being noisy. Great for the market makers to collect a nice holiday bonus off of small traders who obsess over individual stocks and don’t understand why they keep getting whipsawed.
Technical Indicators
Not much use for trend-following indicators in the current conditions. Moving average bowties and MACD will get you stopped out over and over in a sideways market if you just trade them mechanically.
Oscillators (stochastics, momentum, etc.) will give good signals if the parameters are set just right and as long as the chop continues. If you’re trying to trade these, however, be ready to ignore the overbought/oversold signals the moment the trading range is broken.
Remember, none of these indicators predicts the future! They only help you to see when probability is likely to be on your side, and your trading skill and money management do the rest. A stochastics reading of 90 means nothing if a stock has just broken out of a range.
Indicators serve as filters of general conditions you should be able to see on the chart. Look at overall price and volume action. If you can’t see one of Dave Landry’s Big Blue Arrows, don’t let all those other indicators become Rorschach blots and cause you to see something that’s not there.
What Now?
What I’ll do here is chill, enjoy more time with my daughters, watch for the occasional day-trade setup, and wait for a new trend to emerge before I start actively trading again.
As for the market, the S&P is still stuck in the 1250-1275 range I referenced here. Will the “Santa Rally” break us out of that range? I certainly don’t know. If it does, I’d trade it with really tight stops into January, suspecting a fade.
Otherwise, I’ll be watching for things to get really active starting the first week of January, and will be looking to day trade the most volatile stocks in the direction of the market break. I’ll trade in either direction, but the news is so “unbearably” positive right now, I’m anticipating a drop.