“Truly successful decision making relies on a balance between deliberate and instinctive thinking.”
Malcolm Gladlwell from Blink: The Power of Thinking Without Thinking, 2005
What is “feel?” Admittedly, this is a tough topic to explain, but also one of the most important concepts in trading. It’s not about indicators, it’s not about technical analysis; it’s about understanding the overall song of the markets. It comes from years of experience and a deep connection with the general movement of the markets.
We are often bombarded with too much information, but the trick is to be able to decipher that information and find a general “feel” for the day. You could be watching a myriad of different indicators, but try to look for basic “tells.” Is it a choppy day or a trend day?
Say you are selling vertical credit spreads all day long; you still have to have a feel for the overall market.
Watch for extremes. If the NYSE adv decline line ($add) is up or down at least 2000 odds. Ask yourself, are you in the midst of a trend day?
Here is an example: On February 2, 2016, the bank stocks were crushed on the opening. The $add was minus 2200. Add to that, $GS was down almost 5 dollars on the opening, and showed no signs of rallying. Also, we were seeing the doji’s on the low, and the overall market was selling off. When some financial stocks show this kind of extreme weakness; you are in the midst of a trend day.
Now, how do you trade trend days? You can sell verticals on ATR trailing stop breaks and stay with them, unless the reasons that caused it to be a trend day, reverse.
In our case, the trend day was caused by weakness in crude oil, oil stocks, and banks stocks. Now, if they show no signs of reversing then you can ride your credit spreads.
See more from Chris Brecher at Simpler Stocks.