Since early August, the ‘easier’ trade has been shorting the pops. The setups have been what I would consider “highly reliable”. Repeatedly, the market has rallied, sucked people into the rally, stalled for a period of 2-3 days, then dropped. This has happened on 3 different occasions since the big drop at the start of August (8/15, 8/31, 9/20).
One of the toughest things to do as a trader is to employ a strategy that is dynamic enough to adjust to changing market conditions.
Continually looking for long trades in a downtrending market is an easy way to continually lose money.
This is especially true in regard to “breakout” trading. There is a time and a place for that strategy…and it is not right now. I started trading stocks using that strategy many years ago …and in down markets over the years learned my lesson through the slow (and sometimes fast) bleed of my account balance on trades that would continually get stopped out. The same patterns and trades that worked in September-December of 2010, are NOT going to work now…they just aren’t. The environment has changed completely.
So why fight it?
Traders need to a) develop alternative trading methods to deal with dynamic market situations (i.e. what works in time period “A” is not going to work in period “B” and vice versa), b) stay in all cash until your particular strategy is viable again (it will happen, you just need to be patient) or c) start doing research on placing long-term money into dividend stocks to take advantage of locking in shares at a higher yield.