Reversal days like today are psychologically challenging. For one thing, they reveal how our biases can get in the way. If you get bearish due to the market being ‘overbought’ you may get squeezed by a surprise rally. If you stayed stubbornly bullish too long, however, you may find yourself trying to fight an avalanche.
Reversal days show us the inconsistencies and weak links in our Trading Plan. Are you really prepared to catch a trend…regardless of direction? Can you reliably identify the first pullback in a new trend (the ideal place to enter), whether the trend is up or down?
Often we have blind spots. It is difficult to see what we are not prepared and ‘primed’ to see. If you struggle to identify trend, check your Trading Plan. If your Plan is adequate, then work on developing the flexibility to be firmly objective about market direction each and every day.