Gold & SP500 Psychology: They Bail, We Buy

Understanding market psychology is crucial for a trader’s success. But so many people get caught up in the daily market volatility, media coverage and “noise” of the trading environment, it’s almost impossible to not think and trade in agreement with the majority of traders.

However, effective technical analysis allows us to use trends, patterns and other indicators to evaluate the market’s current psychological state. Fortunately, this analysis can both enable us to independently forecast whether the market is heading in an upward or downward trend and do so against the grain of the majority.

It takes a disciplined trader to be able to watch and listen to the market doing one thing, filter out the noise, then do the opposite – all in a controlled manor. To this day I still find myself fighting the herd mentality at times and that is when I step away from the computer and regroup.

I have a simple rule that has saved me thousands over the years. I would rather miss a trade and learn what caused me to get confused, then to take a loss.

Rule # 1 – When in Doubt, Stay Out!

There are two types of traders:

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How to Trade IntraDay Gold and SP500

Last week was an incredible week for trading the intraday charts. With rising volume and volatility prices began to move up or down for extended periods of time allowing traders to profit from these powerful short term price swings.

During times like these traders using the daily charts for their guide found the market very difficult to time because of the whipsaw action each day. In this case, it is definitely best to stay clear of the market until the dust settles. But for a trader who watches the intraday charts, this is when serious money is made on a daily and consistent basis.

Most traders avoid using intraday charts because they either:

1.    Think it’s day trading and do not want to sit in front of the computer all day
2.    Do not understand how to trade in these “intraday” time frames.

Intraday trading is one of the most over looked yet most profitable trading strategies, in my opinion. One of the reasons I like/love it so much is the fact that it provides high probability setups on a weekly basis and trades generally last 2 -36 hours. Also, this strategy carries very low risk simply because you are in cash most of the time, putting your money to work only when high probability setups form.

If you are an active trader you should have been making money hand over fist last week. Below are close up shots of my charts:

My eSignal Trading Platform

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