From Andrew Thrasher:
The past few trading days have been a nice change of scenery haven't they? I haven't made it a secret that I'm not sold on the idea that we've put in an absolute bottom in equities just yet. With that, I've been asked a few times what I look for then in a market bottom.
Before going into each point, it's important to note that predicting or calling a market bottom is not critical to a traders success, far from it. Sticking to your risk management principles and taking trades that fit your strategy are more important than being "that guy" who called the tops and bottoms to the S&P or Nasdaq.
The underlying purpose of measuring the health of an uptrend or downtrend (in this case) is to help get an idea of how much risk is built into the market for either direction. I subscribe to the idea that capital markets are one big rubber band, once that rubber band has been stretched to its maximum resistance, it will likely revert to its mean. It's just a matter of finding the optimal time during that "stretching" to determine if the risk is warranted to begin stepping back into the market.
So with that, below are a few of the things that I look for to gain confidence that a bottom has been put in for equity prices or at least that some of the risk may have diminished from adding equities to the watch list...
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