Four Market Elements To Watch
In this article:
- Four market elements for traders’ focus
- Using the holiday calendar as a trading tool
- Update and midweek insights
This market has devolved into chaos to a point where traders are focusing on simplified elements of the market to get a handle on movement.
Traders don’t want to place themselves into a position where strategies and tools get too complicated as the market rips and rallies.
Simpler’s traders are working alternatives to the “standard” strategies, and planning how many stock trading days in a year are available for trading with these four market elements.
(Check out the free video, above, for insight into trading this changing market.)
Four market elements reveal potential trades
Breaking down complex market scenarios and applying Simpler strategies – combined with effective tools – is a goal for helping retail traders.
Four elements have come to light in this volatile market. All can be plotted on stock trading charts and tracked using indicators. These elements help traders map out the sentiment and levels of the market to effectively determine trades with acceptable risk to reward ratios.
Here are four elements our traders are watch:
- Price – This is front and center on the minds of traders. Does the asset have value and which direction is price moving? Price can be a single determining value in taking a trade, yet it intertwines with all other trading factors.
- Time – Traders can focus on the time of day to trade – open, morning, afternoon, close – and the time frame for a trade, i.e. minutes, hourly, daily, monthly. Time is also a consideration for options trades because “in the money” or “out of the money” puts and calls can have vastly differing price points.
- Volume – The number of shares trading for an asset – stocks, options, futures – over a set time period determines volume. An asset with little trading volume (even at a lower price) may not be as appealing as an asset with high volume and higher price.
- Volatility – This measures the risk of an asset and is determined by the range of price for an asset over a period of time. Volatility can be used as a guide to assess whether an asset can sustain price over time or if the volatility indicates a reverse in direction.
All of these elements contribute to traders anticipating the potential of a trade.
A starting question for any trade is, “How fast can I get in and get out of a trade if the market shifts?” Consider the elements above when trying to answer that question.
The stock market can move quickly, and experienced traders look at these variables before risking capital.
Are bonds boring or strong possibilities?
Another blip on the trading radar has Simpler’s traders asking a question others may not consider.
Are bonds too boring for traders in this market?
Bonds may not sound very exciting, but there are potential plays churning in all the volatility.
Consider the 30-year U.S. Treasury bond futures. Taking a look at the daily chart for /ZB, the 10x Bars and Ready. Aim. Fire!® Pro premium indicators are showing a reversal along with a significant daily squeeze.
These signals support the possibility of a rally in bonds and, along with other factors, present possibilities of the S&P 500 gaining some support. (There is no expectation among Simpler’s traders that stocks will quickly return to “the way it was” in this market.)
This bond movement is being watched by Simpler’s traders. They have adjusted as key sectors, such as technology, suffer from excess speculation and falter in this market.
Another strategy Simpler’s traders are formulating is the possibility of holding specific options trades, like in bonds, that may be able to “ride through” bear market movement into the fall. Traders are working through these possibilities in the online trading community.
Plan calendar for holidays, “volatility seasons”
Traders often overlook another simple tool available for the trading tool chest.
Ask yourself, “How many stock trading days in a year are open to traders?”
There are 252 trading days in a 365-day year, barring any unforeseen events that close markets or any changes in observed holiday schedules.
The typical holiday schedule for the New York Stock Exchange (NYSE) includes:
- New Year’s Day
- Martin Luther King, Jr. Day
- Washington's Birthday
- Good Friday
- Memorial Day
- Juneteenth National Independence Day
- Independence Day
- Labor Day
- Thanksgiving Day
- Christmas Day
There are other closure variations based on rules of the exchanges, and the observed holiday may be on a weekday if the holiday falls on a weekend. Some federal holidays are not observed by the exchanges. More details at Simpler Trading.
The next question for traders is, “How do I use the trading calendar to my advantage?”
The trading calendar can be broken into “volatility seasons” – August, September, November, October. This can be tracked using the Chicago Board Of Exchange (CBOE) Volatility Index (VIX) – also known as the “fear” index.
Statistics have shown how mood changes among traders can affect market movement before and after holidays. Experienced traders know how to anticipate these mood swings – positive or negative – and time trade setups. In other words, play the mood swings to target potential gains.
Aggressive traders will work around the holiday schedule (and might be upset about losing a trading day). Other traders may want to enjoy the time away from the markets for a little rest and revitalization.
Something traders may want to consider heading into this Memorial Day weekend is whether the recent heavy selling is a sign of what lies ahead or just a “seasonal” market cycle?
There is a saying in trading, “Sell in May and go away.” Historically May has been a month of considerable selling headed into the summer season where traders may not want to hold onto positions.
Yet, midweek before the May holiday, the market bounced back once again.
The Dow closed at 32,120.28 points to gain .60% (adding 191.66 points on the day). The Nasdaq spiked to 11,434.74 points for a 1.51% jump while the S&P 500 rallied .95% to 3,978.78 points.
How calm this summer holds in the market remains to be seen as the bear market works to take hold of trading.
Apple Watch (update): “Darling” still headed lower?
Simpler’s traders have held that Apple (AAPL) may be the lynchpin supporting the market, and if it falls the market will spiral downward. Here’s action in Apple – Closed today at: 140.52. Apple grew from a pandemic low of 57.21 in March 2020, but is down from 182.01 since Jan. 1.
Despite a .11% gain today, Apple is still down from last week. Apple is a leader in the technology space and a high-value stock within the Dow, Nasdaq, and S&P 500.
Is trading the best path for you?
Continuous market uncertainty can cause traders to question whether they want to start trading or even continue trading.
Now may be the time for some insight into trading without a long-term commitment.
If you are curious to see “how traders trade,” then come join us for FREE. Simpler Trading has opened the Simpler Free Trading Room, where traders can take a peek behind the veil to better understand what it’s like to trade with professional traders.
Sign up today and get access to our live online chat room, recorded live sessions, and free classes that might just open new doors along this trading journey.
Keep calendar updated, eyes open
Traders may need the upcoming holiday weekend to recharge after weeks of volatility in the market.
Before some time off, here are some midweek tidbits from Simpler’s traders:
- Reading the “tea leaves” from the Federal Reserve has traders on edge. Will there be more rate hikes sooner or later? If the Fed eases back, will the market rebound? Any Fed events are worthy of adding to trading calendars.
- As U.S. and foreign central bank policies clash, take note of how this affects the U.S. stock market. No picking bottoms here, expect more downside movement.
- Avoid “hope-ium” (hoping for the market to do what you want) and trade what the market reveals. Follow market structure in the daily downtrend and watch for bounces that could set up short-side trades.
In this market, remain flexible, keep the calendar updated, and eyes open for sudden market shifts.