Stocks have been moving in tandem regardless of fundamentals or sector belonging. Just look at the intraday charts on Friday – everything is looking very similar.

Unless your view is longer-term and you are slowly accumulating an index or a strong business at progressively lower prices, the most common-sense way to make money in this environment is intraday trading. This type of market behavior usually doesn’t last too long, except if it’s a new long bear market which is clear only in hindsight. Eventually, things calm down and multi-day swings become easier.

The new earnings season is just warming up. So far, the market has been fading every strong earnings report (minus Apple) and slamming any remote weakness. This is the first earnings season in a long time where we haven’t seen a breakout and a proper follow-through in the next few days. It’s still early but the price action so far speaks volumes about the current sentiment.

Last week, the Fed confirmed what they have been saying for a while – bond purchases will end in early March and then they will start to gradually increase interest rates. The market initially sold off after the FOMC meeting, only to bounce towards the end of the week.
Quite a few earnings reports are on tap and they will have a major impact on the market’s direction – $GOOGL, $AMZN, $FB, $QCOM, $PYPL, $AMD, $XOM, etc.

It’s important to remain flexible and open-minded to different scenarios and embrace change.

What is R?
Any sound trading methodology has to incorporate risk management, and one of the easiest ways to do that is to use the “R” method.
“R” is a fixed dollar amount that stands for both risk and reward, and is best arrived at by using a percentage of your total trading capital. It allows you to size your position in relation to your risk level instead of in an arbitrary way.
For example, if you have $50,000 available in trading capital (cash not including margin), you might use one-quarter of one percent (.0025), or $125.00, as your “R” factor. This is the total amount you are willing to risk per trade and can be expressed as 1R.
In the highly technical example below, A is a former support level that failed and now is a potential resistance level.
Price is trapped between B and C level, and you are looking to go long if it breaks back above B.
You know that a reasonable stop-loss would be just below level C, so you determine the price distance between your entry just above B and your stop just below C.
Let’s say that this distance is 50 cents. You now take that distance and divide it by your “R” factor, which gives you a position size of 250 shares ($125.00 / .50 = 250).

You now know that if your trade fails and hits your stop-loss, the most you can lose is $125.00 or 1R. The goal then becomes to only take trades where you have the best potential reward for your 1R risk, ideally 1:3.
In this same example, the resistance level of A is a reasonable target for a successful trade, so you determine the distance between your entry just above B, to the target of A. You then divide this number by your “R” factor to see if the trade is worth taking.
If the distance between A and B is $1.50 then you have a 1:3 risk/reward ratio and the trade is a good bet ($1.50 / .50 = 3).
The higher the risk/reward ratio you have on your trades, the fewer times you have to be right to still make money, as the chart below illustrates.

As you can see, if you only take trades that have a 1:3 risk/reward ratio, you only need to be correct 50% of the time to have a 10R profit after ten trades.
Knowing how to use risk/return and position sizing allows you to make sure you are never overextended on trade and ensures that you’ll always be able to return to fight another day.

Here is the screen criteria screen that I use to find short setup ideas. It can be applied to both stocks and ETFs: Entry and Equity selection: the general market is in a correction mode – this helps with the overall success rate of any short positions and the average size of their move.

>> Min. price of $15

>> Min average daily volume of 200k

>> A stock or an ETF that is shortable and optionable

>> Down 2% from the open

>> Either making new 5-day low or finding resistance at its declining 10, 20, 50 or 200-day moving average

>> Price < 5dma < 20dma

>> Price < 50dma

>> 20dma doesn’t have to be below 50dma, but it is a plus

>> Not down 3 days in a row

>> Not down more than 10% in the past 3 days

>> Price < 200dma is a big plus, but not necessary

>> 50dma doesn’t have to be below 200dma, but it’s a plus as well

>> Stop is the high of the entry dayAn alternative of going short an ETF is going long its corresponding leveraged inverse ETF to add some beta to our returns.

Please note: The purpose of this scan is not to simply find stocks that are in a downtrend and to blindly short rallies to declining 5, 10, 20 or 50-day moving averages. We are looking for a move that signals potential start of a new leg lower — this is why we have the “down 2% from the open” requirement.

This scan works great with former momentum stocks — stocks that at some point in the past 3 years went up 100% to 1000%, but are now breaking down and in a downtrend. R is the risk per share taken.

For example, if we short a stock at 40 and put our stop at 41, then R = $1.Partial profit taking – cover half of your position when 2R is achieved – markets tend to be very volatile during corrections.

Some of the biggest rallies happen in corrective periods. Most profits on the short side are ephemeral and need to be protected.

With that in mind, I understand the possible frustration of covering too soon. What is the purpose of even putting on a short position if you are going to cover so soon part of it? Since we only short when the indexes are in a confirmed downtrend and in a free fall, letting the other half our our position run makes sense.

Cover the rest 3 to 10 days later or when 7-10R is achieved

Partial profit taking is optional. In some occasions it is reasonable to give your short setup some breathing room and let it fully develop. Make sure you don’t overstay overstay your welcome. This is why we have the 3-10 trading days time stop. Risk: 0.5% to 1% of capital. This means that on a 100k capital, risk per idea is $500 to $1000.

KOPS Watch… It’s alright Ma, I’m only bleeding. The stock market was only open four days last week but it managed to do selling for eight. There was non-stop selling everywhere. All brief intraday rallies were faded towards the end of the day. Anything that had held relatively well before last week, was hit with a hammer —semis, industrial metals, financials. Like the old song, Nowhere to Run, Nowhere to Hide. Oil and gas stocks are the last standing Mohicans but even they are starting to crack. Anything that was already weak, was completely destroyed —biotech, software, Internet retail. Want proof? $SHOP. Shopify is down 50% in the past two months. This is not obscure small-cap biotech. It’s a bona fide high-growth mega-cap tech stock.The new earnings season has begun. We judge market sentiment by the reactions to earnings. Semis were clobbered despite record earnings from $TSM and $MU. Financials were hit hard despite rising interest rates and improving margins. $NFLX was annihilated because it suggested that future growth might be a bigger challenge. Don’t they always do that anyway? So what gives? One of the bull market’s major characteristics is multiples expansion where due to FOMO and complacency, people are willing to pay higher and higher multiples for most companies’ earnings and sales. The markets are currently in a multiples compression mode. Everything is getting repriced and receiving a lower multiple. The challenge and also the magic of markets is that they tend to overshoot —first to the upside and then to the downside. They don’t just stop in the middle and settle for “fair” prices.And, there’s an FOMC meeting on Tuesday and Wednesday. In previous months, we would see a selloff ahead of the FOMC meeting only to experience a big short-term rally afterward if it becomes clear that Fed’s actions don’t align with their hawkish words. Something similar might happen next week. All major indexes are down significantly multiple days in a row. A big snap-back bounce, even if for a day, is very likely. Some of the most fierce rallies happen within downtrends ——recognize them as such, take advantage of them but don’t overstay your welcome. The trend remains lower.

This is NOT a Market Crash Post!
As nerve-wracking as it’s been to navigate the recent triple-digit market moves, we haven’t seen a really bad day yet. Really, We haven’t.
But we still might.
The problem with fast violent moves often comes with fast failed moves that cause folks to break things, swear like a trucker, and think twice about kicking the cat. That’s why things like allocation models, risk management plans, margin requirements, trading maxims, blah-blah-blah and so have been invented.
But when things break – and break bad— market mechanics take over, often forcing individuals, funds, and institutions to do something they don’t want to do —sell indiscriminately–which further exasperates already extreme moves. And, did we say —or sell into a Panic?
I don’t believe we are currently in a “market mechanics” type of environment, but it feels like we’re close. Does this mean that a major crash is inevitable?
No! Absolutely not.
The market could as easily rally 20% from here as it could drop 20%.
I have no insights into what the market will do, and anyone who tells they do should be aggressively ignored. But right now it feels we have the potential to make a move greater than we’ve seen in quite some time.
The type of move that won’t respect EPS estimates, valuation models, asset allocation, or even my beloved technical analysis —and the type you don’t want to be on the wrong side of.
So, what should you do?
Often, necessity is the mother of invention and sometimes it can be a very cruel mother in that Samuel L. Jackson sort of way.
That said, you don’t have to do anything. Not one thing. Sometimes watching from the sidelines is the best play.
And, if you haven’t already been doing so, raising cash is not a bad idea.
What should you be wary of doing?

>> Trading leveraged products.
>> Trading on margin.
>> Buying at prices you’re not comfortable with.
>> Buying longer-term positions you’re not comfortable holding for a while – and possibly through more volatility.
>> Falling into the trap of thinking “this stock can’t go much lower.”

The purpose of this post is not to scare you, but to give you a heads up that we could potentially —and quickly— find ourselves in the type of market environment that can do you real harm if you’re not careful. The good news is that it will not last.
Repeat: The good news is that it will not last.
Someday —maybe not too far away— things will settle down and we’ll get back to a more “normal” market environment. But until that happens, be smart, be safe, and be careful out there

For now, the SPX, QQQ, and IWM are all still below the 8 and 21EMAs – and the Q’s and IWM are still below the 50EMA. And that’s why selling strength is still the name of the game if you’re an active trader.

For example, let’s say you got long on the reversal action yesterday. Selling partials into strength allows you to lock in a profit AND still participate if this move has legs.Once the indexes get back above the short-term EMAs – and hold – then we can look to hold full positions longer and/or buy breakouts.But for now, we still need to be strategic and manage our risk.

A rational, calm, and disciplined trader should go about their
trading business like this: Creates a watchlist during the weekend, mark
up some charts, and prepares a trading plan before market opens. Those
are all pre-market planning measures that should be a component of a
‘written’ plan.
Now the FOMO trader does not look for a specific setup. Indeed, fools
rush in where angels fear to tread as the FOMO Trader is largely attracted
to volatility and buys almost passively without ample preparation.
Oh, yes, that reminds me: Gamestop.
If you live long enough many investors and traders will experience
FOMO one time or another. Here, today in the ROBINHOOD era, some
investors actually spent their hard-earned money and invested in without
knowing the background or capability of the stock/company. Even
people who never put their hard-earned money to work in the stock
market are opening Robinhood accounts just because of the hype. Aye,
carumba!
It is completely normal to experience anxiety when you see a stock on
its way to a ceiling price, especially when you haven’t been profitable
in the stock market yet and not used to missing on ceiling plays. Who
doesn’t like missing on huge market moves? Naturally, no one does.
When entering a trade, it’s important that you don’t enter for the sake of
not missing the move. What’s more important is to trade your planned
trades since they are made at the time when you’re most objective, rational, and not emotional.
If you…
• Do not wait for your trading setups and enter early before your trig
ger price gets hit for fear that you might miss the move.
• Do not believe that there will be plenty of other plays that the mar
ket will allow you to ride upon.
• Do not have a strategy in approaching the stock market correctly.
• Want to gain money as fast as possible because your peers are
doing so well.
• Are over-confident with your trades after incurring a winning streak.
• Revenge trade after losing trades.
• Chase price as they leave your entry area/zone.
• Rely on the analysis of other people.
HOW TO AVOID FOMO?
Here’s a possible remedy to cure your FOMO behavior.
Understand that…
• Trading is a marathon, not a sprint. Winning trades out of careful
preparation benefits you in the long run.
• You cannot ride every high-flying trade. Some trades won’t be lined
up accordingly with your preferred setups and strategy.
• Know then to trade and more importantly, know when not to.
• Even though we cannot be emotionless, we can actually control how
we behave when they arise.
THE WOULDA SHOULDA COULDA PRISON
If you missed out on one high-flyer, study why you missed it. Adjust your
screening strategy and forget about the “what could have.” If you’re an
investor, stick with your buy low, sell high strategy – and rely on the fundamentals
of the company.

The adrenaline rush from the pleasure and chance to generate money
can really stick to your head and you’ll then be susceptible to give in to
your emotions. Do not rely on your instincts but rather follow a structured
approach in trading the market and write down your trades in your
trading journal after every single trade you take.
Abraham Lincoln has been quoted for having said, “If I had eight hours
to chop down a tree, I’d spend six sharpening my axe.” The hours vary
(usually it’s given as either eight or six hours), but the meaning is that
one should spend more time in preparation.
https://en.wikipedia.org/wiki/Fear_of_missing_out
Now we have a perfect definition for a phenomenon that too many new
and or inexperienced traders encounter – the fear of missing out on a
great trade regardless of whether it fits into your trading plan or follows
the guidelines of your risk-reward ratio.

Two Branches of FOMO in trading
We briefly touched on this idea in the article we published about fears in
trading, but let’s elaborate in order to clarify a few false conceptions that
new traders or inexperienced traders have when they approach trading.
Understanding FOMO is important because it’s the first step in the difficult
journey to adjust your brain in order to retrain this fear. One of the
reasons that rewiring your brain to counter-attack FOMO is difficult is
because the fear works on two contrary emotions:
You see your trade has more potential and you don’t want to get out of it
or-
You see your trade retracing and eating your floating profit and you want
to protect your already made profit.
These feelings put you, the trader, in a difficult situation. Should you
have hope of a good break even though it will be at the expense of losing
while trade is heading towards retracement or breaking even?
Or can you hold on to trade and squeeze more potential out of it? This is
the core of the conflict that creates FOMO in trading.

FOMO from Outside the Market
Another element of the fear comes when you’re on the sidelines watching
the action in the market. When you’re flat and not in the market
but you see opportunities upcoming, you might be compelled to hastily
enter the market prematurely or enter late and miss an opportunity
entirely.
Or let’s say you saw your trade coming to the level you would want to
enter it but not all conditions had been met for the entry. But the missed
trade showed that it would have been a slam dunk for you.
Premature FOMO
Now the scenario repeats itself but you have time to make the trade. The
trade is forming with the same pre-signs but they’re not perfect yet. Your
FOMO kicks in and pushes you to enter prematurely this time which can
cause severe drawdown sometimes stopped out by your stop loss or not
entering at the right risk-reward position for your trade. Acting out of
fear prevented you from getting the most out of your entry.
Post Trade FOMO
On the flip side, related to the recency effect, you experienced a good
trade, and the rally you expected looks to be starting. You saw the confirmations
but the market has moved along. You jump in late and enter
your trade after the rally already started.
In this example, the FOMO on a good rally will make you jump late on
the trade and with that, expose you to more drawdown due to entering in
the middle range of a price. When you’re in no man’s land you can suffer
massive drawdown retracements and also your Risk-Reward-Ratio [RRR]
will be very low because you have to allow a wide stop loss position in
order to survive. ( The abbreviation RRR stands for Risk-Reward-Ratio.
If you set both your position’s stop-loss and take profit (at the point of
opening a trade) with a profit or loss worth 20 pips, your RRR is 1:1. This
means that you may either earn or lose one dollar. )
FOMO Trading Recap
While it all boils down to a fear of missing a great or good trade, FOMO
can be applied to just about all of the stages of trading. From FOMO on
and entry to FOMO on the exit, the anxiety can be paralyzing.

Resolving the fear of missing out is something that every trader needs to
work on. Mental exercises to break the fear of FOMO are crucial when it
comes to self-control and restraint.
Here are several ways to help you cope with FOMO:
Do Not Expect The Perfect Trade
The first step to tackling this problem is to understand and convince
yourself that you cannot expect the perfect trade. Every time you stick to
your plan and are about to trade, train yourself to not expect the trade to
be perfect.
Stick WITH Your Trading Plan
The next step is to put reasonable and realistic entry and exit points into
your plan and only take these. Don’t change the points after you take a
trade. If you do, it will just swap you for the next upcoming trade and all
you’ll be doing is loosening your trading plan. Over time, your whole
plan and portfolio will unravel if you keep on this path.
Embrace Your Emotion
Don’t ignore your feelings, it’s okay to be disappointed that you lose and
feel successful when you win a trade.
You need to be aware of your feelings, you need to know when you’re not
at your peak, and you should stay away from the screen, maybe not trade
that day.
Don’t ignore your feelings, and learn how to respond in any emotional
way, insert it into your trading plan, so you’ll know next time how to act.

“Consider how many hours a pilot or even a surgeon are trained. Not hours but years. Successful trading is really no different. You learn a skill or trading technique however it truly does take years until it becomes second nature. If it was as simple as developing or buying a mechanical trading system or indicator we all would be rich.

Success in trading is built on a strategy that matches your personality, time frame, risk tolerance, and more importantly the proper trading psychology of negating fear and greed. Successful traders are consistent.

Successful traders do not try to avoid losses. They are simply involved in the process of trading and let the results and probabilities occur. Even the most successful traders have long drawdowns and losing periods. The difference is they have persistence, they do not jump around and they are disciplined. I chuckle when I speak to traders and they think they can learn what it took me almost 20 years in a couple of sessions or weekends.

My biggest milestone was to learn how to lose.