For about a month and a half, the S&P 500 ETF (SPY) has not been able to set a strong all-time high because of some major resistance. As I often remind traders who follow technical analysis, resistance like support has a much better chance of keeping the underlying from moving through that level. I would say there is typically a 70% to 80% chance that resistance (or support) will hold.
Take the Odds
In a recent MTM Group Coaching session, we saw SPY move up to about the $573.50 level and get turned away (see chart below). What happened should not have come as a surprise. The ETF was unable to move through the resistance level and retreated to end the session.
I find that too many traders will “chase” that move through resistance only to see the stock or market retreat at that resistance level. While it may not be 99%, I would say a 70% to 80% expected hold is a pretty good chance. Of course, the market will most likely rise through that level (and in this case it eventually did), but the point is to respect resistance.
Emotions Can Ruin It
It is easy to get caught up in the emotions that accompany trading. I absolutely get that. But if you trust the odds and not a hunch, I promise you will have a better success rate at least as far as technical analysis goes. Of course, this is easier said than done, especially when those candlesticks are active. Remember to ask yourself what has a better chance of happening. If you can answer that question, you have put the odds on your side.
