How to handle volatility.

Wednesday, December 3rd, 2008 - Noon (EST).

How to handle volatility.

Sometimes it's hard to believe that with all of this volatility,  the markets (DOW) main trend is still pointed down. The rallies and volatility that we're seeing are all meant to confuse you.

The fact is, Monday's downward move in the DOW was the fifth largest move in history. The two day rally (Tuesday and Wednesday) are counter trend moves. If we see the Dow close at its open or even close lower for the day, I suspect that the high or today's rally will be the high for just the moment. We will see pressure on both Thursday and Friday.

A close below 8000 will be devastating for the bulls and will indicate a further move down and a retest of the lows that we saw earlier in the week (around the 7600 level basis the DOW).

Readers of this blog know that we are still negative using MarketClub's "Trade Triangle" technology. I expect to see this market remain on the defensive for the balance of the year. So here's what we're looking for... if the market closes lower on the day, or if it closes at or near to its opening range (which was 8,409), then I expect that today's high will in fact be the counter trend rally high for the week.

These are incredibly volatile times in the marketplace. We are seeing swings on a daily and hourly basis that would normally take six week or six month to play out.

The key concept to a winning strategy in times like these is to have a game plan and to stick with it because overall it will bring you out on top.

Every success in trading and in life,

Adam Hewison
Co-creator, Marketclub