Landshark Instructor Team
If this news cycle wasn't enough proof that the news does not matter and that price and technical analysis do then I am not sure what is. There are two technical tools we can use when markets are at all-time highs to help identify both when to take profits and to initiate short positions.
Relative Strength Index
The first tool to look at where to determine to exit (or scale out) of a position and as well, to get short, is the easiest: Relative Strength Index. RSI is a great took to identify the market momentum, or lack there of. Before markets make new highs they need to 'gain energy' and pull back to 'reset' before going after new highs then once reached become 'stagnant' or trade 'sideways'. RSI can help us identify this.
While this is not the sole tool we like to incorporate in our Stock trading classes it does help us to determine when the market momentum may slow and A) Re Set or B) Prepare for a reversal of the trend. Think of price as if you were running up a flight of stares, unless you're a triathlete, odds are you will use all of your energy and need to 'rest' or 'reset' before continuing on further. This is almost identical in how we perceive market momentum, especially at all-time highs.
Lower Highs, a Confirmation of Reversal.
The next method we look at to determine if all-time highs should be sold is a very simple one that does not require an indicator but just a sharp eye. As markets reach highs they need new, willing-buyers, so how can we determine if there is a new buyer, or rather, a lack of one: Lower highs. As the market moves impulsively into new highs it will surely see those who take profit so our job is to look for that lower high on a daily or 4 hour time frame as a clue of potential reversal.
These are just two basic examples of how to trade all-time highs in the stock markets. If you notice with this, we showed two charts of leading stock indexes, not individual stocks. Why? Because the indexes in themselves are used as indicators of market sentiment, something we teach more in-depth in our Core Foundations of Trading program.
So whether you are long assets in your portfolio or missed the move these tools may help you to better prepare to take your gains and even establish short positions. Again, this is much better than guessing and it's also part of having a plan, before the trade, as we discussed in the last blog post. To learn more about the Landshark Education programs contact our offices today.