I do not chase the trades. It’s against my rules. I rather look if there is anything, from my selection of ETFs, which might try to play a “catch-up” game.
Most of the time I find at least couple of candidates, as it was the case this time.
What do I look for? Good risk/reward: ETFs that have a support with lower risk = closer to the support and enough room until resistance.
Why does it work most of the time? Possible reasoning: a lot of traders will be thinking to catch something. They will not want to miss the market move. They will look for what had underperformed and has to “return to the median” etc.
This time I had my eye on EWZ and EWC (see my previous blogs).
On June 27th SPY was fighting for life at deep waters of SMA(200) with MACD trying to cross over.
On the same day IWM was already in a better shape, fighting for life at more shallow waters of SMA(20), but below SMA(50). I like that! It was time to look for “underperformers”.
EWZ was in the open deep ocean waters, far below SMA(200) but with support around $70 (see my blog “Who took the money?” From June 20th 2011)
Here was my choice of low risk, good reward trade under the conditions of a good market.
So do not chase and do not despair, look for a good trade within your rules. And, of course, always manage your risk.
Happy 4th of July!