Saturday, January 22, 2011

Think Probabilities

"There is only one side to the stock market;....not the bull side or the bear side, but the right side" - Jesse Livermore

Listen, I am not talking about a CRASH here. All I am expecting is a reasonable size pullback in the next few weeks.

The chart above are the Major US indices, and as you see they are showing weakness all across the board. The key to be a professional trader is to constantly think in probabilities.

Probabilities is essential to all successful traders who profit from this market consistently. Since I am sensing weakness in the market in the coming week or so, I am more inclined to short some stocks that are already showing weakness or underperformed the market in the past few months. If my projection is correct, which is if the market decided to pull back starting next week. Chances of that this pull back will help pushing these bearish stocks even lower would be high.

What if I am wrong? What if the market decided to charge higher next week due to some amazing earning data/ economic data...etc.? That's OK too, why? Because these undeformed stocks weren't part of the stock market rally in the last few months to begin with and the chances of them rallying with the rest of market are low. Therefore I can easily buy-to-cover my short positions to break-even or get out with a small scratch.

Trading the market is no different than playing a simple Hi - Low Drinking game. When the face card is showing a King, most likely the player would predict the next card to be lower. So please treat trading simple and always THINK PROBABILITIES.

So here are some short setups that are worth considering: BAP DGW MOTR NG RDY XRS

Good Luck and like the most annoying guy on the #Study stream would say. That's it, trade 'em well and make it a good evening.

P.S.  Root for the Steelers and Greenbay tomorrow. (SUPER BOWL XLV)

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