Happy Friday, Evolvers!

In Today’s Q&A, we’ll finally demystify a certain part of technical analysis that seems to be causing some students trouble…

But first, the market has been surging following the Fed’s 25 basis point interest rate hike and Chairman Jerome Powell’s speech on Wednesday.

The S&P 500 ETF Trust (NYSEARCA: SPY) strung together back-to-back 1.5%+ days on Wednesday and Thursday, leaving the index up 3.5% for the week (at the time of writing).

Funny, because I sure did notice a lot of social media retail traders talking up their short positions earlier in the week…

In hindsight, this phenomenon reminds me of three important lessons to remember:

1. NEVER trust alerts coming from nameless, faceless promoters on message boards. They act like clairvoyant geniuses until they’re dead wrong and rarely take responsibility for their misguidance.
2. Even if you believed the market was heading lower at the beginning of the week, you could’ve (and should’ve) seen the bullish signals and switched your game plan up once the overall uptrend came into clear view.
3. Placing options bets before the Fed meeting would’ve been a bad strategy with a 50% chance of success, whereas riding the trend following Powell’s speech was a relatively textbook bullish setup.

But for now, it’s time for our Friday Q&A! Sit back, relax, and I’ll answer your trading questions!

“What chart timeframes do you view most frequently? There are so many to choose from…”

I understand that charting and technical analysis can be overwhelming when you’re first starting.

Your brokerage platform will offer dozens of different timeframes and charting options, but let me help you narrow them down a bit.

Let me preface this by telling you these are the timeframes that work for me, which doesn’t necessarily mean they’ll be right for you.

That said, I think this is a good place to start…

For anyone who doesn’t understand the question, this student is asking about the difference between watching, say, 1-minute charts and daily charts.

First, let’s break down the differences…

On a 1-minute chart, each candle represents one minute. This is a very zoomed-in chart that shows one day of price action.

On a daily chart, each candle represents one day. This is a very zoomed-out chart that shows multiple months of price action.

So, when do I use one versus another?

If I’m day trading weekly contracts, I’m almost always watching either the 1-minute chart or the 5-minute chart…

These zoomed-in charts give me the granular view of the intraday price action that I’m looking for when day trading short-dated contracts.

But if I’m attempting to gauge the big picture, or identify key price levels, you can bet that I’m watching the daily or weekly charts…

I find it’s much easier to see important levels of support and resistance on zoomed-out charts. Think about it … If a stock keeps hitting a certain level over a multi-month period, it’s probably a very important handle for the ticker.

Bottom line: For day trading, focus on the 1-minute and 5-minute charts. But for big-picture technical analysis, stick to the daily and weekly charts.

“I’ve taken some brutal losses recently and feel that I’m losing confidence. How do you turn your mindset around in times like this?”

First, let me say that I totally empathize with your feelings. I’ve actually been pretty down on my own trading performance recently…

But here’s the hard truth…

As a trader, you have to accept the fact that there will be times in your career when you’re just completely wrong about a setup. 

And when you’re wrong in the stock market, that usually means losing money. It’s an unavoidable part of the game. 

Sometimes you’ll buy a failed breakout or failed breakdown, other times an unpredictable headline will reverse the direction of the stock you’re trading.

Even the best setups won’t work every time. You have to know what to do when a setup stops working.

Take me as an example. By all measurable metrics, I’m a very successful trader. But I still make regrettable trades from time to time.

And what do I do when these unfortunate trades hit my account? 

I stay disciplined and cut my losses immediately. Then, I do some serious self-reflection about what I could’ve done differently and why I made the mistake in the first place. 

Whenever I regret a trade, I ask myself … what valuable lessons can I take away from this loss?

Final Thoughts

Have a great weekend, Evolvers!

Don’t get too wrapped up in the bullish momentum happening right now. I don’t trust this rally and I wouldn’t be long anything going into this weekend.

But we’ll have to wait and see what the market has in store for us on Monday.