The Nasty Price Action of a Whipsaw.  Who’s to Blame?

One of the cruelest price action occurrences is the intraday whipsaw and yesterday we witnessed a doozy!  If you apply a little trader psychology to the whipsaw the emotions, Fear, Greed, and Panic will always come to the surface.  One of the places that whipsaws commonly occur is at or near price action bottoms when Fear suddenly reverses to Greed.  Of course, the opposite of that is what we witnessed yesterday.  With the market displaying topping patterns and uncertainty concerning the future of the rally Fear can quickly shift to Panic at or near price action tops.  Most commonly, an event or news story will trigger these nasty intraday reversals in price action.

Traders will often point to these events and assign blame to whatever triggered the reversal for their misfortune.  While it’s true, there was trigger point it’s incorrect to blame the person or the event that set the whipsaw in motion.  The ultimate responsibility for any losses incurred rests squarely on the shoulders of the trader.  Sorry I know that hurts to admit, but it is the truth.  When the market is trending higher, and everything is coming up roses we as traders often fail to see topping action or choose to ignore it.  Price action provided the clues but our emotions clouded our view.  Playing the blame is a bad habit.  Accept that the ultimate responsibility for success or failure rests with you and you alone.

On the Calendar

On the Economic Calander today, we have the weekly jobless claims and a single Fed speaker.  It would be unlikely that either will have the power to move the market today.  On the Earnings front, there are 25 companies reporting, but none are noteworthy unless you have been holding one or thinking of entering.

Plan of Action

My plan for the day do little more than managing the positions that I’m in and continue to prepare.  After the big reversal yesterday we can expect an extra dose of volatility and whippy price action this morning.  However, there is a very good chance the market will get very quiet today as we wait for the Friday morning employment report.  If I do decide to enter any new positions, they will be smaller than normal with a plan to take quick profits if I feel the trade is at risk.

Watch Morning Video | Right Way Options

Trade Wisely,

Doug