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Day Trading In Emotional Markets

Stock charts

The market’s emotional volatility is so high right now that the softest whisper from Washington can instill fear as fast as it can calm the storm, but nothing is moving markets faster than Trump Tweetstorms and explosive headlines.

For investors who aren’t keen to go long right now and bet on this volatile market, day trading the tweetstorm and the mighty headlines might be the best opportunity. After all, this is exactly what the market is immediately reacting to.

If anyone had bought on the dip after hours Monday and then sold shortly after the market opened Tuesday would have made out fairly well.

The catalyst: Last night, authorities revealed they had raided the offices of Trump’s personal lawyer, and then another tweetstorm started whirling, with stocks taking one of many dives they’ve taken over the past few weeks.

(Click to enlarge)

The market is already uncertain, and an FBI raid of lawyer Michael Cohen’s offices was too close to home for stability, as investigators seized records related to the lawyer’s payment to adult-film star Stormy Daniels.

Timing here is critical: The New York Times broke the story of the raid right before the market closed and the Dow then lost almost all of its gains from earlier in the day. It was a nearly 400-point reversal in a matter of less than two hours.

So, buy on that dip, and then watch for the next headline that will move it back to gains.

You wouldn’t have had to wait long. In the early morning hours of Tuesday, headlines about a possible agreement between Trump and Chinese President Xi Jinping started to gain traction, indicating a possible way out of the looming trade war.

So, sell on the news, because it won’t last, either.

(Click to enlarge)

It’s an emotional game that’s being played out almost entirely on headlines and tweets, and the traders who figure out the pattern could come out ahead in this volatile period. Related: These Eight Market Trends Are At A Tipping Point

One trader advises buying stocks “about an hour after President Trump goes on a tweetstorm,” according to CNBC. Then you wait until someone jumps in to stabilize the market, says Jeff Kilburg, CEO of KKM Financial. It was a bit flippantly, admittedly, but the market has never been this emotional.

In an extreme market, when everything’s technically bullish for stocks but half the elite strategists are bullish and half bearish, there’s nothing for an investor to by other than emotion— or, more specifically, the emotions of other speculators.

The stock market can’t figure out Washington’s policy on trades because there is no policy yet, and the market has never before dealt with something as volatile as Trump. Instead, it’s been reduced to immediate responses to headlines and tweets.

And while investors should be putting emotional bias aside, especially fear-driven biases, they’re not. So, the trader’s only recourse is to play the game as it’s being played: Nail down the emotional pattern and trade it back and forth.

This market is a day-trader’s dream volatility set-up for those with the right kind of intelligence for spotting the next emotional swing as it happens.  

By David Craggen for Safehaven.com

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