Market Corrections Test Your Mental Toughness More Than Anything Else

Unlike smooth market uptrends, when large market players (institutions) of size are typically cool, calm, collected, and often buy stocks in the face of even the most bearish of news, market corrections often feature a certain degree of wild indecision as those big players unload stocks or at least refrain from buying them. It is during those times of indecisive price action that we see the market whip around violently throughout the session, as we have seen this week, so far, and even this morning, far more than usual. 

When a correction takes hold, small, individual market players must remain mentally tough via not allowing the seemingly random price swings to trap them into over-trading, nor trading with more size than they can handle in the hope of simply making something happen. 

Beyond that, the emotional toll that a corrective market takes on many a trader can often tarnish them going forward when the next, inevitable smooth uptrend comes around, as the given trader in question has become so battle wear, financially and emotionally drained, and more than anything probably wants a long break from speculation. 

In lieu of attempting to time each violent intraday swing, a better approach is to simply acknowledge that we will, indeed, see those wild swings constantly, as long the correction drags on, and to focus on becoming even more selective with trades while resisting the natural urge to declare each bounce to be a significant bottom. Preserving capital and lowering the number of trades you make is, arguably, half of the battle in corrective markets, since too many traders assume that "volatility" readily means better trading opportunities--Just look at how many times we see the financial media reference that phrase.

In reality, indecisive and volatile markets often cause far more harm than good for those trying to declare a bottom to each bounce and for those over-trading. 

Just this morning, for example, a flattish open was followed by a dip and then sharp bounce, leading many on social media to cheerlead a rally. But the truth is that a corrective market is rarely that straightforward. In all likelihood, we could just as easily probe the overnight low in the futures, way below, as we could stage a "face-ripper" of a squeeze. 

Hence, the indecision of a corrective market and the challenge it presents traders in terms of mental toughness and, in effect, holding it together emotionally to not feel compelled to chase every single move the market is making. 

One other note worth making this morning, the gold miners in the GDX ETF are rallying again and still may be close to completely a still-unconfirmed inverse head and shoulders bullish daily chart pattern. For Members, we still view $19.50 as the main area above to break and hold.