The rally extended yesterday and the moves are wild. On Monday the index was down 288 points, on Tuesday it was up 182, on Wednesday down 102 and up 212 yesterday. How often do we these kind of moves? Rarely. In a panic driven market the moves will extend, so if you are going to go short you must do so as high as possible.
This of course has a disadvantage, if the limit order is too high you risk missing the move. That’s the dilemma we face in a panic driven market. I would rather miss a potential profit than lose money, so this time I am going short right at the top of the range. I have also sold calls as well, these should make money. In fact trading options in this market is the best strategy because there is no stop loss in the way. To follow my option trades click here.
The good news is that markets don’t stay volatile for ever, volatility will drop and trading conditions will return to normal. The rebound in stocks will relieve the oversold condition on the 13-day BTI and Top 20 Differential. This could happen today or early next week. Once the indicators are no longer oversold the FTSE will plunge again.