Predicting the end of a correction is impossible. The misguided and online gurus will say otherwise. Best to ignore them if you want a portfolio to be proud of that you can then pass on to your loved ones to continue your success.
The legacy you leave is a choice.
If predicting what the market does not next is impossible, what do we do?
The answer, keep it simple and let price dictate a market reversal.
As an investor, I am aware of proven levels with a history of making markets change direction. I then stand aside and wait for the price to reverse and display enough bullishness to start buying back into the stock market.
The four main levels are:
- Moving averages, specifically the 200, 50 and 20.
- Round numbers e.g. $100, $150, $200 etc
- Horizontal support and resistance levels based on previous highs and lows in the trend.
- Trend lines based on pivot points in a trend.
The decline in the price of the S&P since January has made light work of support levels, causing a global panic.
Many investors would do well familiarising themselves with these key levels, bringing a much calmer and more objective approach to dealing with declines in the market.
Below I have the daily timeframe of the S&P 500. I have highlighted:
- In red where the price broke through the 20, 50 and 200 simple moving averages.
- In blue where the price broke through the $4000 round number.
- In green where the price found support at the lowest price point of 2021.
I have also drawn the current trend line in play. This is where we see the end of this recent pullback and a potential move back to the upside.
Allowing price to dictate a reversal drastically increases the odds of you profiting from your investment decisions. Predicting leaves you open to being wrong far more often than you care to be.
If the bulls gather enough momentum to break back above the daily 200 simple moving average (black line), I will start buying back into the market.
I go into more detail in yesterday’s article on two additional indicators I use to identify the start of a bull market.
For now, I continue to abide by the mantra that standing aside is also a position.
Image and article originally from www.benzinga.com. Read the original article here.