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Market Madness: Regrouping the Morning After

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Keep it simple going forward; identify opportunities, pick prudent entries, set stops.

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Editor's Note: The following was posted in real time on our premium Buzz & Banter. It's being shared here for the benefit of the Minyanville community.

Yesterday's action sure was chaotic, and I doubt I'm alone in scratching my head this morning.

Now, assuming that markets are rational is generally a recipe for disaster. However, yesterday's move did demonstrate a few things: First and foremost, the afternoon selloff showed just how quickly individuals are apt to sell stocks when they smell a selloff in the air. At the same time, the final 30 minutes displayed just how much anxiety is sitting on the sidelines. And when a dip finally came, it was gobbled up aggressively.

So as traders, how should we handle this? I can only speak from my perspective - and as one who got caught up in yesterday's action a little too much. I added a few shorts of which I'm now paying for.

I think the thing to remember is that, while we've come a long way off the lows, there are still stocks setting up and acting well with appropriate risk reward. It's not our job to determine whether these will work or not, it's simply our job to take the opportunities as they present themselves, place our stops, and let prudent trading take over.

Feeling a bit stung from the action, I have to move a bit slower, using less size than I normally would. So this morning, for example, I've started Monsanto (MON) long with a stop at today's low. If it reverses and takes out that low, I'm clearly wrong, and can step aside. If, however, this is finally the break that sets this stock free, it could see 90 quickly.

Regardless of where you are in the mix of movement after yesterday's chaotic tape, keep it simple going forward; identify opportunities, pick prudent entries and set stops.

The rest is all probability.

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Position in MON

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