The secret of the self-fulfilling prophecy

When it comes to chart analysis, here’s a nifty little secret I’ve uncovered:

Self-fulfilling prophecies.

What I mean is, that there are a lot of levels in the markets that the majority of people track. The top ones (based on my loose observation) being the 200-day & 50-day simple moving averages. 

Despite my preference for defying industry norms, I actually find it useful to follow along with what the crowd follows. Because, it can become a self-fulfilling prophecy.

See, if most people follow certain charting levels, such as those two SMAs, and place their stops & targets around there, then that’s where the liquidity is in the markets. And in the age of algorithm trading, the robots are searching for liquidity. So, I’ve noticed, those common levels that people follow tend to get tested a lot.

Again, because there’s money waiting to be traded there.

The little trick I do is that I don’t place stop orders out there in the markets.

Sure, I might have some levels in my mind that I’d like a stock to hold, but I don’t physically put stop orders in place. I’ve seen the markets dip down to my stop, take out my order, and then turn-around to make the big move I was hoping for without me!

Grrrr!

It happened too many times to be a coincidence.

I realized that the market knows where my “lines in the sand” are and knows that it can probably get some great entries there.

Nowadays, I stay patient and trade my very forgiving system ... and collect 1%+ per week.

The result?

My own self-fulfilling prophecy: I will keep growing my trading accounts week after week.

All right, let’s talk about today’s news...

Yahoo Finance

Why it matters …

This is “Retail Earnings Week” (my name for it). From the article…

“Retail giants Home Depot, Lowe's, Target, and Walmart are reporting earnings and outlooks, helping shed light on the impacts of tariffs and how households are coping with pricing pressures.”

These companies’ earnings reports will give the Fed some idea of how the everyday consumer is dealing with the economy.

Actually, the data from Visa or Amazon would be as good or better measure of how the U.S. consumer is thinking as to what they are purchasing and how much is going on credit cards.  This info is available, but not published as a formal report to my knowledge.

The expectation from the article is that folks are spending money and powering through the economic challenges without a rate cut.  Small businesses (think Russell 2000, IWM, TNA) and home sales/construction would greatly benefit from a rate cut. The Fed President is to speak on Friday from the boondoggle in Jackson Hole. It might shed some light on the September meeting, but not really likely.

Comments: Well, the Dow is up 100 points, the Nasdaq is down 100 points and the S&P 500 is almost unchanged. I’d say we are not moving much!

Bitcoin is down $1100, but that is less than 1% as well. Folks are on vacation, the Fed is at a boondoggle, the peace talks are going well and earnings have mostly been reported. The market seems to be waiting for a new catalyst. If you listen closely, you can hear premium decaying … I love it!

I’ve got a trade idea from my new scan that can yield 1.47% premium for this Friday’s expiration...