Most traders see a clean technical level and think they have to take it. Here's why that's backwards...
| | | | Most traders see a perfect setup and think they have to trade it. That's exactly backwards. | I'm looking at my screen right now, and Goldman Sachs is sitting right on a beautiful technical level. I mean, textbook stuff - we're about to pierce through recent lows, and if we do, this thing's got room to run lower. The setup is so clean it's almost insulting. | Microsoft? Same story. I've marked the $392.50 level as death…it breaks through there, and we're talking about a meaningful move to the downside. | You know what I'm doing about these setups? Absolutely nothing. | Here's the thing - I worked in charting long enough to recognize patterns. I can see when something's about to break. But I also know when the marketplace is an absolute minefield, and right now, we're in disaster territory. | | | | The average true range in the S&Ps is running 10-12 points per minute. Think about that for a second. These aren't normal market conditions. These are 15-handle moves happening every sixty seconds. When you've got that kind of volatility, it doesn't matter how pretty your setup looks on paper. | I could execute into these trades. I've got the experience and the risk tolerance. But here's what separates experienced traders from everyone else: knowing when the game has changed. | The marketplace doesn't care about your technical levels when it's moving like a futures contract. | This is exactly the kind of session where you pull in your arms and wait. | I don't care if people in my room are pissed off and want another trade. | Do you really want to execute when the market's flying around like this? | When you can't get a decent fill because everything's moving too fast? | Look, I've been frustrated all week. Every day I come in here thinking, "Today's the day we get some clean movement." Instead, we get this slop fest - doji after doji, chopping back and forth in the same range since September. | But frustration doesn't mean you abandon discipline. | The irony is that Goldman setup I mentioned? There's no trade there anyway. No one wants to make markets in Goldman anymore. The options have gone no-trade, which means you're either dealing with retail traders who don't know what they're doing, or institutional size that's playing by completely different rules. | When the structure of the market changes, your approach has to change with it. | I've got three zero-day butterflies on right now, and I'm getting sloshed around on all of them. That's fine - I sized them appropriately for this environment. But I'd rather take controlled losses on properly structured trades than chase perfect setups in an impossible execution environment. | The hardest thing about trading isn't recognizing opportunities. It's recognizing when the conditions make those opportunities untradable. | So what do you do on days like this? You respect the average true range. You acknowledge that your normal playbook doesn't work when the market's acting like a wild child. You size down, spread your risk, and wait for conditions that actually allow you to implement your edge. | The Goldman setup will be there next week. Microsoft isn't going anywhere. But your capital? That disappears real quick when you try to force trades in conditions like these. | Sometimes the best trade is no trade. | And if you can't accept that, you're not ready for the days when the market decides to remind everyone who's really in charge. | To your success, | Don Kaufman | P.S. I've got a lot more to say about this market and what I see coming next week. I'll post on our YouTube channel, make sure to check it out after the bell. | | |
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