In this post:

  • What is one of the greatest strengths of the human race?
  • What are the top 3 rules for adapting to changing markets?
  • Why do I prefer 5-minute charts over daily charts in a changing market?
  • When trading indicators may not be fully reliable or accurate?

One of the greatest strengths of the human race is our ability to adapt to our environment. Not the kind of adapting where we grow fur, webbing, or a new limb, but rather, adapt mentally. It is our mind that lets us creatively invent our way into a solution or change rapidly for the shifting circumstances. Our intellect is what has helped us survive on this planet for so long.

Now it is time to take that intellect, that ability to rapidly change, and apply it to the new stock market environment we currently find ourselves thrust into. Conditions have changed and we must adapt to them in order to financially survive this foreseeable future.

The typical rules are known and abided by trade smaller, use wider stops, and be quicker to pocket gains.

Other rules must be learned on the fly and as the market teaches them: indicators may not be as accurate or reliable, certain moving averages may not be as important as they used to be, and prices may move further and faster than you expect.

For me, the most important thing I have to adapt to is the speed and time frame change. In a market like this things happen quickly and in a big way. This means I have to be really honest with myself when a trade isn’t working, otherwise, I risk giving too much money back. I have already learned that lesson this week (might as well get it out of the way) when I was too stubborn in admitting I was wrong on a trade. It worked for a while, and then I saw it change, but I thought it might shift again in my favor….. Eventually.

‘Eventually’ in this market may not come and if it does, you might be too damaged to recover from it. The bad trade was a quick reminder, early on in this new environment, that I would rather take a position off and miss out on a good trade than be stubborn and lose hard-earned money. Thank you for the fresh lesson, Mr. Market.

With the speed of things, my typical time frame of Daily and Hourly starts to become difficult to read because the price is so far away from the normal parameters. In times like these, I find myself needing to step down to mainly the 15-minute and 5-minute. While this doesn’t change my overall trading rules or methodology, it does mean I have to apply them in an extra time frame or two and act on them in a shorter period of time.

We need to remember that trades set up on the 5 and 15 min time frames won’t last as long as they would on the hourly and daily. It is then imperative to keep in mind that as we operate in the lower time frames, there are now more time frames over us with invisible support and resistance levels. A solid setup on a lower chart which would normally give us a great, longer-term entry, may now get stuffed in 3 days because it ran into overhead resistance on a higher chart which we don’t normally have to deal with.

I was watching the SPY on the 2 and 5 minutes today, expecting the price to continue on its given trend. Those two-time frames were clear overhead but it just didn’t go. So I started to poke around and I found that the hourly 21 EMA was the culprit. Not a moving average I have to worry about very often, but I also don’t often trade the 2 and 5 min, nor do I typically have the 21 overhead.

This environment will challenge the best of us, but it was times like these, in my trading career, that I had some of the best growth lessons. We may pay tuition to the market this semester, but it will be worth the experience and growth which is vital if we are to adapt to this new world for a while.

Here at Simpler Trading, we understand that trading can be overwhelming, but we have experienced professionals that can help. Check out my Moxie Indicator Mastery program for live trading sessions, real-time trade alerts, and more.

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