2020-06-07: Lessons learnt from COVID-19

In my two previous posts I was calling for a market downturn. I was speculating with the COVID-19 data and the impact that would have in the economy, which for sure it has been severe and most probably an economic crisis is coming, if not here already. But trading is not about socio-political analysis and prediction but about reacting to market moves. And this is what I did wrong. I did not reacted, I speculated. I tried to see the future and I anticipated my reaction. In normal life, this would be the right thing to do, but in the markets it is a recipe for disaster and missed opportunities. And this is what exactly happened to me. I entered the wrong swing trades and as of result of that I missed good trades. So in total double loss. The actual lose and the potential gains loss.

Let’s have a look at the current charts:

Dow, Nasdaq and S&P500

Nasdaq is back to YTD highs, obviously propelled by the big tech companies that benefited so much from the COVID-19 crisis. Dow is above the 200 SMA as well as S&P500.

It is interesting to see how the ALMA moving average would have given good entry signals to enter any of these indices and profit from the rally.

Another missed opportunity has been UAL (American Airlines). Let’s have a look at the chart:

This is UAL’s YTD chart. On the chart you have the ALMA moving average (white line) and the 50 and 200 SMAs. The two indicators below are the XBP Efficiency Ratio at the top and an the standard Money Flow Index indicator included in ThinkOrSwim (I just edited the colors).

You can see that the XBP Efficiency Ratio gave a buy signal (green bottom) around mid May at a price of $24. The signal was confirmed by price closing firmly above ALMA (in the chart I’m using Heikin Ashi candles). This entry was good to double your entry in just few days. But I was convinced, by the unavoidable news, that the market would crash.

I can add more and more charts of missed opportunities, but I think that you get the idea already. But, we need to learn from every mistake. We cannot control the news, we cannot control de markets, we cannot control life… the only thing that we can control is ourselves. Our actions are our responsibility. The lesson learnt during COVID-19 is clear:

Do not predict the market. React. Do not trade with news in mind. Follow your indicators.

I hope you like this exercise of “mea culpa”. It is not often to see blogs admitting that they did mistakes. But, again, I’m not here to make myself look like a guru. I’m here to share and record my learnings, hoping that this blog will help someone out there and the future me.

Good luck with your trading.

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