Happy Friday, Evolvers!

‘Fed Week’ is wrapping up in a massive sell-off, with the S&P 500 ETF Trust (NYSEARCA: SPY) down as much as 2.7% yesterday.

Let’s recap…

The Fed hiked 50 basis points (as expected). Remember that many bulls thought this would lead to a euphoric rally…

But the catch came when Chairman Jerome Powell started talking…

His hawkish comments, suggesting that “ongoing rate hikes are likely appropriate,” ended bulls’ hopes of a rate-hike “pause” in the immediate future.

In other words, the rate hikes will be smaller, but they may go on for longer than expected. 

Spoiler alert: The market doesn’t like this news. 

And with the ‘pivot narrative’ shot down yesterday, I think the major indexes could drop a lot further in the near term.

A lot of uncertainty is behind us after this week’s Fed meeting, and that’s a good thing. 

But for now, it’s Friday, so it’s time for our Q&A! Keep reading and I’ll answer your questions…

“It feels like the momentum is shifting to the bears’ side. Is the market going to re-test the October lows?”

While I can’t predict the future, I’ve been saying that I think the market’s headed lower all year. 

Now is no exception. And you’re on the right track when it comes to paying attention to the price action.

Throughout my long career in the stock market, I’ve noticed that the best traders are incredible at pattern recognition. 

When a multi-month market trend finally begins to reverse, traders should be on high alert.

But the best traders do more than sound the alarm — they put skin in the game, entering a trade as soon as they see the trend reversal occurring.

If you can identify a major pattern disruption before the majority of the market sees it, you’ll have the opportunity to enter a predictive trade ahead of everyone else.

And these types of trades can be some of the most profitable. (Imagine if you’d bought SPY puts above $405 on Tuesday!)

So, here’s my answer. I can’t tell you what the market’s gonna do…

But I think you should trust your gut when you have a strong conviction. 

Then, put your money where your mouth is. Have skin in the game. 

If you can’t pull the trigger when great setups come along, you’ll never succeed as a trader.

Lastly, I’ll leave you with a tweet I highlighted this week (take from it what you will)…

Let this sink in folks 👇 https://t.co/jLmyqxzoWI

— Mark Croock (@thehonestcroock) December 15, 2022

“I hear people saying that the current volatility is ideal for day traders. But personally, the more volatile things get … the more I tend to lose. What am I doing wrong?”

WARNING: This question is especially important considering the current market conditions, so listen up!

First, let me say that you aren’t doing anything wrong.

As options traders, most of us love to see big price swings…

If you’re an experienced trader who knows how to capitalize on your strategy, you may view volatility as a welcome sight. (I know I do.)

After all, when the market’s scrambling, juicy trading setups can emerge out of the madness.

That said, I often see newbie traders make the mistake of diving head-first into a volatile market … even if it doesn’t fit their personality or strategy.

They hear other traders talk about the big opportunities waiting in the volatility, leading some newbies to overestimate their abilities — and enter trades they aren’t prepared for.

WARNING: This is a CRITICAL ERROR that you MUST AVOID! (Especially in the options market, where implied volatility (IV) can massively affect the value of your contracts.)

Just because it works for other traders doesn’t mean it’ll work for you.

If you’re finding yourself losing money during extra-volatile periods of trading, the fix is simple. Stop trading on volatile days.

Don’t feel like you have to trade a volatile day or week just because others are. 

In fact, you could potentially find a priceless market edge by doing things differently than the average retail trader.

It sounds to me like you’re currently having an ‘a-ha moment’ about what specific strategies work (or don’t work) for you. 

This is a huge step forward for any trader. Don’t be discouraged by it … embrace it!

Final Thoughts

Have a great weekend, Evolvers!

This week was momentous, meaning we all have a lot to study over the weekend.

I’ll be back in your inbox on Monday, rested and ready to take on the last few weeks of 2022!