What to look for to know when to get back into this market.
Ok, so it hasn’t worked out that great this month, the whole investing thing and all. And the market as of yesterday was down about 30 percent or so. Today (as of Tuesday) is giving a little bit of a bounce, but only because yesterday was so heinous. All hope is lost, right? No. Here’s how to know when to get back in to this market.
If you’re like me, you had been waiting for this thing to break. Well, it doesn’t look like that is going to happen any time soon. The president thinks it can go until August, some people across the pond are saying this could be a yearlong ordeal with half the world getting it.
Not any of this is very encouraging. Regardless, I am going to show you how to take the emotions out of these moves, and get you back to profitable. This is going to be a very simple formula that will let you know exactly when to get back in.
Here is a daily chart of the S&P as it stands right now:
What you are going to look for is the MACD cross positively between the fast line and the slow line, the black over the red. This is tracking moving averages, and is one of the most reliable indicators of price momentum.
This is going to take all the emotion out of your trading. As long as the black line is under the red, we are in a more negative momentum environment. When the black line crosses the red, then we have entered into a positive momentum swing.
The best way to play these kinds of swings, though, is with a trailing stop that is pretty close. So somewhere around 2-3%. The reason being, there may be a false crossover and it may negatively cross back to where it was originally and continue negative momentum. But when there is a confirmed cross and it stays positive, it’s about as reliable as counting cards.
And I want to clarify. Counting cards implies that the odds are in your favor, which this indicator is aiding. It doesn’t mean for certain that you will for sure make any money. But it will help you by keeping your emotions out of the game until this thing comes back around.