How to overcome the fear of entering market pullbacks

Salvador Dali

Have no fear of perfection, you will never reach it - Salvador Dali 

As swing traders we all know that a market pullback is our friend. If we go back and look at any market index chart, we will see that the best time to enter the market was on a pullback after and extended run. Take a look at this short one minute video that illustrates the power of doing nothing more than entering pullbacks in the S&P 500. In the past year, entering on a deep pullback was profitable 7 out of 8 times. That win rate is hard to beat.

Watch this 2 minute video showing the power of entering on market pullbacks.

   http://youtu.be/gMWEIDamlKA

So intellectually we know the right thing to do. Entering on pullbacks is a slam dunk trade. So why don't we do it more often?

It all goes back to the mental game. Fear is quite possibly the most powerful emotion. Fear stifles us and leads to indecisiveness and bad decisions. To be a successful winning trader, you must overcome fear. How do we overcome this fear?

Here are 4 methods for overcoming the fear of buying dips:

1. Trade small. Make sure you are risking an amount that won't cause you pain if you take a small loss. This way, even if you take a loss on the trade, it's no big deal.

2. Trust your methodology. You have done the research. You know that historically the way to make money in the market is buying dips.

3. Shut off social media and CNBC. Becoming a stock news junkie is a guaranteed method for increasing your fear levels.

4. Go to war with yourself.

Conquer your fear, buy on dips and become a profitable trader. It's that simple.

If you would like to learn more about how I trade, receive my nightly focus list with market analysis,setups and trade alerts, sign up for a 14 day free trial at BullsonWallStreet.com.  

If you like this article, follow me on twitter

P.S.S. If you like this article, share it, comment on it or let me know.

Better to Play the Second Bounce

It's easier to play the second bounce, as opposed to trying to time the first. If you take a look at the chart above (SPY vs T2108), it is obvious that there is no sure fire method in timing the bottom of a correction.

The T2108 indicator (via telechart) measures stocks above the 40 day moving average. While it can be used in many ways, the most popular is to use it as an overbought/oversold indicator. When it reaches 70/80 or higher, the market is in overbought territory. When 20/30 or lower, and the market is oversold.

Notice that going back to 2006, major bounces and trend resumptions have occurred anywhere from 40 to almost 0. Therefore, it's tough to say one should jump in because the indicator is at 20 and is oversold.

However, I have more confidence in picking entry after the first major bounce. Almost every bounce has pulled back in both price and indicator reading. Assuming history repeats itself, that is when I will take on larger long side positions.