Whippy price action increases risk.

The whippy price we have been experiencing is pretty typical as a market struggles with new highs.  However, it’s that same whippy price action that chops up traders and increases the risk on every trade they make.  We never know how long a period like this will last.  It’s the wise trader that recognizes the additional risk and curtails their trading activity and decreases the size of trades during higher risk periods.  It’s so easy to lose hard earned profits fighting volatile price action.  Always remember Cash is a position.

On the Calendar

There is no question that this has been a big week on the Economic Calendar.  Today we get a little break with only three noteworthy items.  First, we will get the Housing Starts number at 8:30 AM Eastern.  The April number was a disappointment. However, forecasters see them bouncing back in May to a 1.2 million annualized rate.  At 10:00 AM we the latest reading on Consumer Sentiment which has been trading very strongly this year.   The consensus is suggesting that will continue with a 97.1 print.

After only a brief break we will once again start seeing the Fed speakers back on the news tour.  Today we have one speaker at 12:45.  The Earnings Calendar is also giving us a break today with only one company expected to report.  The company ticker is UTSI, and they have not confirmed the time of the report.

Action Plan

Yesterday we experienced yet another major whipsaw as the market try to decipher what to do at these highs.  For the last ten days, the Spy has chopped in a range of just over 2 points and often visiting both sides of the range each day!  The DIA has seen big point swings every day yet has managed to maintain an uptrend in the process.  Needless to say, it has become a very challenging market for swing traders due to the volatility.  I would like to say it’s over, but there is no reason to believe that today won’t be more of the same so again I’m suggesting caution.

Overall the trend is still bullish thus I will continue looking for long positions, but if I find good trades, I will reduce the trade size until I see extreme whips come to and end.  To successfully trade whippy market stops have to widen to avoid intraday whips from constantly tripping stops.  So, in conclusion, I suggest trading small if you decide to trade at all.

Trade Wisely,

Doug