In today's post, we will compare the current correction in S&P500 with all the similar corrections that happened since the beginning of the bull market in 2009 (the bottom of the 2008 financial crisis).
Why are we doing this? Because in the market, no situation is completely new, and by understanding similar situations in the past, and the following resolutions, we can get a good idea of how to react to the present.
I will be using the following parameters. Every decline of 15% or more will be considered a major correction. Under those parameters, we have 6 situations to analyze. 2010 / 2011 / 2015 / 2018 / 2020 (I bet you remember that) / 2022 (now).
The information that you will see in the following pictures is: a) % Decline b) Duration from the beginning of the correction until the bottom of it. c) The most external trendline of the corrections.
2010
2011
2015
2018
2020
2022
Alright. So how can I use this? You can use this in several ways. The most basic way is looking for patterns in specific areas you are interested in. For example, one of the main tools I use to look for setups is waiting for the breakout of the most external trendlines of corrections and then looking for corrective movements that I can use to set entry and stop levels. But that's my style. So you can use yours, like taking each of these scenarios and using moving averages, indicators, or whatever you prefer.
The key aspect here is that I have classified similar situations in terms of decline and Duration. Now it's up to you to develop setups around this, and you can test how your parameters would have worked on 5 scenarios in the past. If you see a clear edge, then you have a great opportunity to plan your next setup.
Thanks for reading! If you have ideas in mind, I would love to see what parameters you can come up with in the comments. Like "I have tested X, W, Z," and this was my result.
The biggest difference now compared to the other corrections since 2008, is that the Feds will now act as a burden on the market. Since 2008, the Feds have been supporting the market with their Quantitative Easening program, but all that is coming to an end. Coupled with inflation and soaring energy prices, you have a recipe for disaster. It's a perfect storm. But on the other hand, the market will stay irrational longer than you can stay solvent, so there's that. When the tides goes out we will see who has been swimming naked, aka which traders didn't use proper risk management to handle this tricky situation.
onecalledsam
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Great post.
Sobhan_23
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It would be a good chance for buying in multiple steps,s and p and generally big tech stocks are not a bad investment,at least in long period of time Nice evaluation by the way pal👍🏻