Situational Awareness (SA) can save you money | stockbee

4/29/2014

Situational Awareness (SA) can save you money


As a swing trader you should be constantly reassessing the situations around you. The objective is to find favorable periods and avoid unfavorable periods. Or change your tactics based on how the market conditions are likely to be in next 3 to 5 days.

Situational Awareness (SA) helps you avoid stupid mistakes or avoid big drawdowns. You are constantly scanning the environment for danger signal or favorable periods.

This is inherent part of being a swing trader. Even day traders need situational awareness as market behaves different in different situation. A conscious effort at developing SA will pay you life time dividend.

Breadth is one of the tools that helps you develop SA as it can warn about possible dangers or turns. For example when number of stocks up 50% plus in a month climbs above 20 , it indicates possibility of a correction or reverse of that is when 20 or more stocks are down 50% plus. Other intraday breadth indicators do similar job.

Historical studies is another way to  build SA skill. As you would have read today Tuesday turnaround is historical tendency and traders should be aware of that.

Similarly lot of historical tendencies like bounce after 3 to 4 days of weakness in indexes during bearish phases help you tactically manage your shorts.  If you are short and indexes are down 4 or 5 days in a row taking profits or tightening stops is what SA would help you do

Writing  down your SA daily can be good way to develop the skill and then comparing the days action with your SA raed, helps you fine tune your  . Habit of doing that will help you build a lifetime skill.

Think of SA as like daily weather readings. Today morning if the weather says 40 centigrade and winds of 10 miles per hour, knowing this you would wear appropriate clothes for your morning run. If weather indicates tornado and heavy rain , you will be prepared for it.

Same way Situational awareness is must have skill for short term traders. It can save you lots of grief and money. 

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