In One Chart: How to make a profitable trade in this market, even when you’re wrong
Jani Ziedins, the trader behind the Cracked Market blog, feels like he’s got the right strategy for squeezing profits out of this volatile stock market amid these “definitely not normal times.”
Even when he’s wrong.
Typically not a day trader, Ziedins says it’s way too risky to expose his portfolio to the kind of overnight swings the market has been delivering lately.
“It has been my policy for a few weeks now to not hold positions overnight,” he explained. “These 2%, 3% and even 5% opening gaps leap over any sensible stops we use to protect ourselves.”
While those wild shifts are tough to predict, Ziedins says other patterns have emerged.
“As unreliable as the open gaps have been, the market’s first move has been quite reliable and often signals a much larger intraday move,” he wrote in a blog post. “Most of the time that means buying the early move, hanging on and taking profits in the afternoon.”
Sometimes, however, it doesn’t work that way. This is the stock market, after all. But therein lies another opportunity that Ziedins says has been paying off nicely.
“The other thing I noticed lately is when I’m wrong, I tend to be really wrong. Rather than simply pull the plug and try again the next day, I pull the plug and switch directions,” he said, pointing out that having tight stops on his initial positions makes this possible. “As much as it feels wrong to go against my gut, it gets a lot easier to tolerate when we see the profits pile up.”
Here’s a chart of what this approach looks like in practice:
He acknowledged that he won’t be hitting any major home runs using this approach, but, the truth is, a win’s a win, especially at times like these. “While no one is getting rich from a 1% or 2% intraday move,” Ziedins wrote, “do it enough times and the profits start to add up.”
How’s that strategy working in Thursday’s session?
So far, stocks gapped up at the open and have held those gains for the most part. At last check, the Dow Jones Industrial Average DJIA,
was up more than 400 points while the S&P 500 index SPX,
and tech-heavy Nasdaq COMP,
were also solidly higher.
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