Following and trading on price can be compared to the reading of a good book. As we read each page, we acquire additional information that may give us a better understanding of the unfolding story.
The same is true of the market, as each day is like the reading of another page. The pages of a book make up chapters. These chapters in trading represent bull markets, bear markets, distribution and accumulation, and time frames of high and low volatility.
Unfortunately, in trading, we cannot skip to the end of the book to learn how everything turns out. However, as traders, we have learned that studying and remembering the past can pay great dividends.
Trading price in its rawest form is simply plotting and studying price without the use of moving averages, stochastics, RSI, or other technical indicators. This simplified but often overlooked methodology can offer everything a trader needs to be successful.
NASDAQ 100 LOWER LOWS & LOWER HIGH
QQQ – The Nasdaq 100 ETF has been making lower lows and lower highs. A longer-term analysis of price is showing us that the 2022 low is lower than the lowest price that the QQQ had traded in 2021. The QQQ in 2021 had a peak to trough range of 26.03%. So far in 2022, the QQQ has had a peak to trough range of 28.71%.
Therefore: Price is showing that QQQ is breaking down and volatility is expanding as it is greater than last year.
QQQ • INVESCO QQQ TRUST ETF • NASDAQ • 4-HOUR
S&P 500 LOWER LOWS & LOWER HIGHS
SPY – The S&P 500 ETF has been making lower lows and lower highs. The SPY in 2022 has had a peak to trough range of 18.74%.
Therefore: Price is showing us SPY is breaking down and it appears to have put in a major top with confirmation being a new swing low.
SPY • SPDR S&P 500 ETR TRUST • ARCA • 4-HOUR
DOW 30 LOWER LOWS & LOWER HIGHS
DIA – The Dow Jones Industrials 30 ETF has been making lower lows and lower highs. The DIA in 2022 has had a peak to trough range of 15.02%.
Therefore: Price is showing us DIA is breaking down and appears to have put in a major top with confirmation being a new swing low.
Note: the DIA is doing better than the QQQ or SPY as money flow is rotating out of previously high-performing stocks and seeking safety in blue-chip lower performing stocks.
DIA • SPDR DOW JONES INDUSTRIAL AVERAGE ETF •ARCA • 4-HOUR
US DOLLAR HIGHER HIGHS & HIGHER LOWS
UUP – The US Dollar ETF has been making higher highs and higher lows. The UUP in 2022 has had a peak to trough range of 10.43%. UUP has also taken out the highest high that it made in 2021.
Therefore: The price is showing us UUP has broken out to the upside and is in a bull market with confirmation being a new swing high.
According to the 2019 Triennial Central Bank Survey conducted every three years by the Bank of International Settlements: trading in FX markets reached $6.6 trillion per day in April 2019. The BIS report further noted the USD is associated with 88% of all trades, which is $5.8+ trillion in USD daily transactional volume.
The US Dollar continues to attract capital from investors all over the world. But this may prove to be a double-edged sword for US stocks. As capital flocks to the USD, this, in turn, hurts US multinationals as they need to convert their weak foreign currency profits back into USD.
The USD safe-haven trade may eventually trigger a broad and deep selloff in US stocks. As the USD continues to strengthen, corporate profits for US multinationals will shrink or disappear.
UUP • INVESCO DB USD INDEX BULLISH FUND ETF • ARCA • 4-HOUR
LEARN FROM OUR TEAM OF SEASONED TRADERS
In today’s market environment, it’s imperative to assess your trading plan, portfolio holdings, and cash reserves. Experienced traders know what their downside risk is and adapt as necessary. Successful traders manage risk by utilizing stop-loss orders, rebalancing existing positions, reducing portfolio holdings, liquidating investments, and moving into cash.
Successfully managing our drawdowns ensures our trading success. The larger the loss, the more difficult it will be to make up. Consider the following:
- A loss of 10% requires an 11% gain to recover
- A 50% loss requires a 100% gain to recover
- A 60% loss requires an even more daunting 150% gain to simply return to break even.
Recovery time also varies significantly depending upon the magnitude of the drawdown. A 10% drawdown can typically be recovered in weeks or a few months, while a 50% drawdown may take several years to recover.
Depending on a trader’s age, they may not have the time to wait on the recovery or the patience. Therefore, successful traders know it’s critical to keep their drawdowns within reason, as most of them learned this principle the hard way.
HOW WE CAN HELP YOU LEARN TO INVEST CONSERVATIVELY
At TheTechnicalTraders.com, my team and I can do these things:
- Reduce your FOMO and manage your emotions.
- Have proven trading strategies for bull and bear markets.
- Provide quality trades for investing conservatively.
- Tell you when to take profits and exit trades.
- Save you time with our research.
- Provide above-average returns/growth over the long run.
- Have consistent growth with low volatility/risks.
- Make trading and investing safer, more profitable, and educational.
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Chief Market Strategist
Founder of TheTechnicalTraders.com