How do you determine rut in the markets are over?

[Handle123]

Let's take the early February cave in the markets. Tons of people were saying, and many likely are still saying, that we are going to retest those lows. Then we had the big drop the other day when Trump brought up the whole tariff thing.

So when something like this happens, what is the criteria that you look for to say, "OK, this rut is now over, we will now go back into general market price increases"? Is there a magic chart? Magic pattern? Or just X number of days of calm markets? I haven't a clue.

Thanks!

I can't test "they", meaning I don't listen to anyone, I will go to bookstore and see it covers of magazines are all saying something good or bad, if bad I increase volume little bit cause "They" are usually wrong. Some of my systems shut down cause the one minute bars are too big range and systems will continue to stay off for 2 weeks, then if still big, it changes targets and protective stops somethings greatly to start trading again. And all based on 10-14 years of back testing tick data. One losing trade often would pay for all the data, so thinking cheap long ago on buying data hurt me more than helped. And now it is you only as good as the data you use.

 

[Scataphagos]

So when something like this happens, what is the criteria that you look for to say, "OK, this rut is now over, we will now go back into general market price increases"? Is there a magic chart? Magic pattern? Or just X number of days of calm markets? I haven't a clue.

It's a guess. That's what stops are for.

 

[zdreg]

So, the market is going up like 70% or 80% of the time. I don't know the right number, but it typically goes up. So when it goes down for an extended period, or ever a short period but a very big down swing, I'm just generically calling that a "rut". I'm wondering how you would determine, once we've had a "rut", that we are out of it.

" So when it goes down for an extended period, or ever a short period but a very big down swing, I'm just generically calling that a "rut"
you are not a real trader with that bias.

 

[beerntrading]

Let's take the early February cave in the markets. Tons of people were saying, and many likely are still saying, that we are going to retest those lows. Then we had the big drop the other day when Trump brought up the whole tariff thing.

Having kicked in the teeth of that bear in real time on ET for that reversal, I'll tell you what I saw:

It was basically a royal flush of bullish signals (long-term, mid-term, and short-term charts signalling bullish, confirmed across market, sectors, and indexes). That made 2525 look like a very important level on the SPX (broadly confirmed by individual components + my discussions / reading of those who watch systemic moves more closely than me).

So, as we approached this level, I got in 1/3 position sizes from around 2570-2555 on the drop. This gave a very high risk reward--had we failed at 2525, I'd be holding only 1/3 of my ultimate position size because I was waiting for a tick-the-bottom candle--had that candle not materialized, I'd be very quickly under 2500. When the candle came, I loaded in the second third, and I'd only be looking at a 2-3% drop. But I was also in options, and the psychological damage at 2500 would have been huge and most likely been accompanied by a volatility spike which would have lessened the damage on my positions. Got into the last third as we went back up and confirmed the reversal and just started managing positions from that point.

So, it's not that I determined it was over, or predicted it was the end. It was just there was a very clear reverse or fail level that gave a VERY high risk:reward.

I just had a list of certain scenarios that could have happened. One was my 'prediction', the scenario I thought most likely, and the others were failures and fakes. When a scenario started playing out, I had a ready-made set of trades to capitalize on it, or get out of the way of it. If the market starts doing something I haven't laid out in one of my scenarios, I start to get worried and lighten up while looking around to figure out a new scenario on the fly.

TL;DR: You don't determine if a rut ends. It either conforms to your expectations for a certain scenario playing out or not and you trade it accordingly.