It’s a scary four letter word. One that can make sane people do crazy things. One that can drop a market from All Time Highs down -15% in five days (as of the time of this blog). Four months of market expansion came crashing down in five days because of fear.

In all fairness, the coronavirus is definitely something to be afraid of. But a market drop like this isn’t something simply out of fear for a virus. It’s a trigger that piled on tightly wound markets with little support along the way. Over the last 20 weeks we’ve seen prices soar at an unbelievable rate without little stopping them to gather support. And on days like today, prices are currently soaring 400 points and back down in a matter of minutes. Pure madness.

When people have fear, they panic and do things they might not do if they were to sit a minute and take a breath. Today is panic mode; one minute sellers are trying to get out of their positions, the next to buy – afraid they’re missing out on rally profits. Calm the F down, people.


Always Have A Plan. No one knows where the market is going but if you have a plan, sometimes A & B, you can be more confident in your money management skills and not just shoot from the hip.

Maxon’s plan is to always stick to the models. Our models are backtested and optimized so that we always have a plan for times like this. At this point, most of our long models were stopped out overnight. But we don’t jump right back in out of FEAR that we’re missing something. We wait for the next market trigger. There will be another setup when the dust settles and the market finds a bottom. We want consistent gains, not sporadic wins with the chance of losing it again.

Let’s take a look at some charts to make a plan for a well thought out execution.

SPX 20200228 12 06 07

As you can see, no matter how ‘oversold’ or ‘overbought’ a market is, it can always get worse. We had quite a few days in RSI Overbought territory with a negative divergence, yet the market wanted to make one more All Time High (ATH) to sweep out any remaining buyers. Job well done, Mr. Market. Now it looks like things are in a free fall.

Price has fallen below the 200MA and may find support around the $2820 spot. We won’t begin to predict where the market will go next week. We look at the data and wait for our models to trigger a high probability setup before we get back in. For now, we sit back and wait.

Helpful things in times of PANIC

  • Keep your finger off the trigger. Your emotions will get the best of you and it’s hard not to hit ‘Buy’/’Sell’ with your finger on the mouse. This is where major mistakes happen and those little ‘click-click’s’ can do serious damage.
  • Never catch a falling knife. What happens when you do? You get CUT. And not in a good way.
  • Step away from the computer. Go outside, read a book, go to the gym and work out your frustrations. If you’re glued to the computer and see the candles move up/down, you WILL get emotional and put your finger on the trigger. See bullet #1.
  • Turn the news off. The media is made to hype things up so it may sound like the end of the world but I promise, this, too shall pass.
  • Let the dust settle. Let the markets find a bottom before trying to call it. It doesn’t matter who sees the bottom and gets in at the exact moment the rally shoots prices back up. How many times did they get it wrong trying to find the bottom? Be patient and wait for stability. We want a good setup for profit, not bragging rights to the southern-most tip.


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