News, Global Conflicts Force Trading Strategy Changes

The conflict between Russia and Ukraine has made significant changes to the global and U.S. markets. 

This makes paying attention to the international scene an important aspect of trading – an area that traders, as a whole, often don’t acknowledge on a daily basis.

Need to change ‘go-to’ trading strategy

Danielle Shay, Vice President of Options at Simpler Trading, has shown how at this point in the game, the trading strategy of “buy the dip” no longer applies. The CBOE Market Volatility Index (VIX) is exploding with chop, causing traders to set aside their “go-to” strategies. 

Sector rotations in the market have forced strategy changes – as have the interest rate hike announcements by the Federal Reserve. 

While many hoped the Fed would hold back on going forward with interest rate hikes to prevent further panic in the market, Danielle believes the federal prognosticators are between a rock and a hard place with the 25-basis point hikes already on the calendar.

Stock charts are key trading tools

There are a few critical technical factors to consider when searching for opportunities in this uncertain market.

Danielle always starts with the “go-to” trading strategy tool – the daily stock chart. This is where she sees the impact on the market from the news – like the conflict in Eastern Europe.

Daily chart levels became more impactful when the market started breaking through key levels of support – the 50, 100, and 200 simple moving average (SMA) markers. These chart levels come into play specifically in this kind of market. Even further, these major levels are a key line in the sand due to the market falling so substantially.

Danielle reminds traders how it is important to note that this environment is not a trending market.

These SMA numbers would be welcomed in a trending market. But at this point, potential opportunities, most usually for short trades, are going to be found around these SMA levels. Traders should understand where and how the market trend has shifted and what this means for their trading strategies.

Danielle looks for signs on the charts to see the shifts in trend.

When major events are unfolding in the market, trading strategy should also shift. – Danielle Shay

Search for price action, support and resistance

Danielle encourages traders to understand how a good planning strategy in a weak market includes learning to read price action on an intraday chart, then comparing it to the areas of support and resistance to see if, and how, they have shifted from the weekly chart.

Danielle focuses on these market internals with an emphasis on daily levels compared to historical time frames. There isn’t much the broader market hasn’t experienced at some point in time.

Using historical events as a comparison, Danielle can analyze how the market performed and exited those events. This comparison gives traders an idea of what the market likes to see and how it responds.

With so many wrenches thrown into the market, making a solid game plan for trading strategy is not optional – it’s essential.

(Learn more about Danielle Shay, Vice President of Options at Simpler Trading – Danielle is a market analyst, trader and expert commentator. As a former teacher, her goal is to help traders grasp the basics that make trading simpler — no matter their skill level. She has the keen ability to relay trading information in small tangible bits where even the “best” of traders will find her insights useful and easy to understand. Her primary focus is on trend-following, directional strategies via options trading, though she covers stocks and exchange traded funds (ETFs) as well. Danielle is a frequent expert guest in the media, on CNBC, Fox News, Nasdaq TradeTalks, Fox Business, Yahoo Finance, Cheddar, StockCharts.com, and more. Follow her on Twitter @traderDanielle.)