I’ve written before about the importance of discipline in trading. Last September I highlighted why it was important to close a trade if Twitter momentum was failing. This week we had an example of staying disciplined by not entering a long trade until the bulls overwhelm the bears on Twitter. On Monday I posted potential trade setups for emerging markets (EEM) and Freeport McMoRan (FCX). In that post I warned to wait for a buy signal before making a trade. The reason is that we want to wait until it’s clear that many other traders on Twitter are accumulating the stock…then we ride along with them.
Look at the updated charts and you can see that the setups didn’t materialize into a buy signal. Instead, market participants started dumping both stocks and momentum turned down from it’s confirming downtrend line. This indicates that the bears once again beat the bulls at resistance (from sentiment and momentum). As a result, I walk away from the trade and wait for another setup.
Twitter momentum for the gold miner’s ETF (GDX) did generate a buy signal. You can see the full details here. Now it’s time to manage the trade. Twitter momentum is now painting a confirming uptrend line for GDX. If that line is broken to the downside it’ll be time to close the trade or take some profit depending on your gains and your time horizon. You can follow the links in this post backwards in time to see how we managed a GDX trade at the first of the year. It outlines a road map for a counter trend bounce trade or accumulating long term positions at potential bottoms.