One of the main reasons why swing trading works so well in volatile markets is many of the support and resistance levels have a high probability of predictability.
For example, last week I mentioned in more than one video and blog post that a short term stopping point for SPY would be around 192.50.
It’s not voodoo and it has nothing to do with luck or a crystal ball.
The stopping point on Friday was simply a .382% Fibonacci retracement from the most recent low to high.
This is a technique discussed many times in daily video analysis.
Markets are made up of people. People have different reasons for making decisions. One of the most fascinating questions that seems to elude good answers is “if you know in advance that the market will stop going down at the .382 retrace level, then what came first, the buyers at that level, or the natural Fibonacci number?”
Great question and it remains somewhat of a mystery.
Is it because all the traders know about the Fibonacci levels and are trading based on those number? I doubt it.
To me, it remains on of the great phenomenons of how market act and react.
Just at the point of enough pessimism where people get scared out of stocks is when the turn usually occurs. It remains the only business on earth where nobody wants the sale price. (Other than us of course)
Now that we’ve established a short term support level for the market, what’s next?
Technical indicators, common sense and highest probability say we have continued higher prices into the end of the week.
Of course, we’ll get one of those counter moves mid week where the market insists on faking everyone out who thinks clear sailing ahead.
So if you can identify a time and price when the market will make a short term trend change, then you can pick stocks just the same. Rising tide lifts all boats.
Either way, expect generally light volume, some back and forth chopping around, but higher prices for the week.
Much more detail in the video below: