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Where Might You Have Re-entered the Market (or Did You Miss the Boat...Again)?

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If theres anything certain in the market, its that most mainstream investors tend to miss the recovery period after a deep correction or a long bear.

To be fair, the COVID-19 crisis was unprecedented. We heard talk about depression-level data, job losses in the millions, for instance, and we didnt know if recovery was going to come in the shape of a V, a W, a prolonged U, an indeterminate L, or whether it was too early to call for a recovery at all.

Nevertheless, depending on what kind of investor or trader you are, there were certain principles that could have helped you regardless of the outcome.

Hopefully, short-term traders also hold long-term investments (its just a wise thing to do). When the sky was falling at or near [1], investors might have used this opportunity to dollar-cost average, shifting capital to much-needed industries and sectors that were hit the hardest. As an investor, you might have expected the market to drop even further. But thats why you dollar-cost average in small chunks. Investing isnt trading. Yet certain industries and companies remain critical to a functioning economy (given theyre not too deep in debt to risk insolvency).

In April, the market rebounded, pulled back, and headed upward once again. In a situation like this, one that's uncertain, re-entry requires risk-taking, but with a well-measured exit point, should you be wrong (swing traders are generally prepared for the market to move against them).

So where might you have risked re-entry? A breakout of the swing high at [2], keeping a stop loss at the most recent swing low at [3]. By the way, this is Swing Trading 101 using price action. Sure, its easy to call it out now that the move has been completed. But if you were to look at it as it unfolded, it was not hard to figure it out then.

Personally, I took quite a few positions in several industries during the period we just discussed, using these basic principles. If the market went against me, well, thats what a stop-loss is for. I probably would have written about another re-entry. But this is what happened, and this is how I saw it. Not rocket science. Just a few simple tactical principles.

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About the author

Karl Montevirgen is an independent content writer. Having been involved in the commodities and FX markets for the last 9 years, Karl writes for several companies and publications in the finance space. 

You can view his extended profile, list of publications, and theoretical content work on his LinkedIn page. 

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