I am posting this market update to show beginning investors and traders that trading does not have to be complicated.  It is important for everyone to develop their own style in trading, whether stocks, options, forex or commodities, traders who do well are usually ones that follow the KISS (Keep It Super Simple) principle.  So, here goes my analysis of today’s stock market action.

Today, the stock market took a breather. All market indices were up between 1 and 1.5%. From the candlestick charts below (stock charts courtesy VectorVest), one can see that all the indices rose, but none of them closed above yesterday’s opening price. Thus, although rising prices usually would be considered ‘bullish’, today’s market action would be regarded as suspect, and called an ‘inside’ day (as the trading occurred within the range of the prior day).  To learn more about technical analysis and candlestick charting, check out this free resource at Stockchart.com’s Chart School.    

SPY has an inside day

NASDAQ has an inside day

DOW has an inside day

THE STOCK OPTIONS TRADER’S REVIEW               

Prudent traders would not open new trades until the Mr. Market gives us a clear sign of what he plans to do – whether to break out to the upside or the downside.  A break above the recent highs would suggest a bullish move, whereas a break below the lines of support would mean a bearish outlook.  At this point, given the strength of yesterday’s down move, the bias is to the downside.

Most individual (‘retail’) traders should not more than a few ‘active’ trades at any one time.  Having no more than 5 to 10 active trades at a time makes it easy to review the individual trades quickly each evening to determine whether any action is necessary. For me, this usually means deciding whether to change any of my GTC orders (see ‘Power of the GTC order).

So, until Mr. Market gives us a clear indication of what the future holds, in the words of Oliver Cromwell, ‘Keep your powder dry’!

Happy Trading!