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Over the past few months, trading has been really challenging.
The major indexes hit their all-time highs in February. Then they turned sharply lower, quickly erasing the previous five months of gains.
A counter-rally in March faded out, and those indexes broke lower again. The announcement of “Liberation Day” tariffs in early April exacerbated the down move.
By the time those indexes bottomed out late last month, the S&P 500 and Nasdaq had lost around 21% and 25%, respectively (peak to trough).
Investors believed a recession was imminent.
But since that point, the recovery has been almost a perfect ‘V’ shape. The S&P 500 is within striking distance of its February 19 high:
S&P 500 (SPX)
Source: eSignal
That’s welcome relief for buy-and-hold investors.
But it can be frustrating for traders who missed out on these major moves…
Don’t Fret Over Missed Trades
Some traders think they have to trade every move. If not, they see it as a failure.
But no matter how much analysis and research you do, there will be times when a move slips by.
For example, I brought my subscribers some great trades when the markets tanked from February to April. We raked in a series of double- and triple-digit gains.
But we missed a big chunk of the ensuing rally.
And I’ve been trading for 40+ years and ran a hedge fund for over a decade! While I’d love to say that I catch each and every move, sometimes I miss profitable trading opportunities. That happens to every trader… retail or professional.
Perhaps the move doesn’t match your entry criteria. Or maybe you don’t have conviction in the underlying move.
Rather than beating yourself up over missed opportunities, the trick is to let go and focus on finding your next trade.
Just as I’m doing now…
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Finding the Next Trade
Take another look at the chart…
S&P 500 (SPX)
Source: eSignal
The strong rebound has pushed the Relative Strength Index (RSI) into overbought territory (green circle).
And I see trouble ahead. Tariffs still haven’t hit consumers in the wallet. Rising inflation and supply shocks are on the way.
That leaves the market vulnerable to a correction. Everyone is far too complacent at the moment. And that’s influencing my trades…
I’m focused on taking advantage of the market’s mean reversion to the downside when it hits. The rally I missed is consigned to history.
And I’d encourage you to take the same perspective.
The next time you miss out on a move, don’t waste time or emotional energy. Just let all that go and get busy tracking down your next trade.
Because the great thing about the markets is that there’s always another trade coming down the pipe.
Regards,
Larry Benedict
Editor, Trading With Larry Benedict
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