Anchoring Expectations

I received an email from a great member and friend in which the concern that the market feels like it may never drop and I reminded my friend that it was just mid October in which it felt like the market would never rise, the Fear and Greed index that runs from 0-100 had been pegged at 0, the most bearish for nearly a week. The point is not about my friend/member, this is something we all deal with, it's emotions in the heat of the trade and they rarely serve us well.

Sometimes I think it's good to go back to what we were looking at and forecasting before things changed so I want to just touch on a few posts from mid-October which I had said I was trying to "Anchor" expectations so you could use moves like this to your advantage , so you'd know what to expect and hopefully not get bogged down in emotions and miss great opportunities as our emotions are often the best reverse indicator we have.

From an October 13th Market Update, 2 days before the market lows were put in...

"The 5 min chart which is usually the timeframe I use for trades is obviously not enough, this tells me this is likely to be more than just an oversold bounce, but a sentiment changer and this is why,  once again I try to anchor expectations before anything happens. Right now it's difficult to believe we'll see a sharp upside move and that move we can use to short select assets in to, but once a move starts, sentiment changes fast so I want you to see all of this before hand so when you see it in reality, you knew what to expect, you aren't caught up in the emotions that these type of moves are designed to stir and you can make the trades that are otherwise, emotionally very difficult." 

From October 14th's post, the day before the market lows were put in, XLF & Market Update

"this as a broadening top would have pulled in the retail shorts and just like the H&S shakeout, this would be a perfect place to shake them out with a move above the trendline that shakes them out and then fails to a lower low, whether it makes a right shoulder or not almost seems like a moot point being the neckline is already broken.

The larger point is this looks to be shaping up as a rather larger or strong counter trend move/correction, so once again I mention that to anchor expectations as it's one thing now when sentiment is bearish to say, "I'll use any price strength to short in to", but when sentiment changes on a strong move, emotions take over, this is why I try to anchor expectations before we get to an emotional stage with objective data.

The name of the game for now however is still patience unless you are doing some day trading which I'm putting out the market signals fi like the last pullback signal intraday."

And finally from October 15th, the day of the market lows that led to this move higher at 1:04 p.m., Important Update...

"I'm not worried about the size of the move, I'm worried about how fast it can flip and that's why I'm spending most of my day flipping back and forth between about 20 assets looking for those signals as I suspect this is a move we don't want to miss.

Also I want to post this to anchor expectations as this gives us another chance to sell short in to strength, but it will be emotionally difficult which is why I bring it up now before there's any upside or emotions that come in the way of your emotions and making the trade, the market will make a lower low, but look at the 1929 breakdown and the first counter trend rally of about 50% shortly after, they are strong, impressive and their job is to be convincing, you just have to know it's not going to last."

This isn't about a victory lap in predicting a strong move which this has been one of the strongest moves we have seen in years in many assets, nor about the sharp reversal which is not normally what we look for, nor the upside target which we hit, it's not about the trade idea on Oct 14th that would have gained 14% or about the opportunities right now to get in new positions for a new leg lower or a trade inflection point. This is about emotions. I'll always try to anchor expectations ahead of time, but like they say, "Every boxer has a fight plan until the first punch is thrown."

Emotions and sentiment are funny things, they often paralyze us when we need to be the most proactive and they are often the best reverse indicator we have. Just remember, the best that you'll ever get from the market are probabilities and you make the best choice you can with the data you have and you are well served by sticking to the probabilities and the data and doing everything you can to put the emotions where they belong , outside of your decisions.