There will be a theme that keeps repeating in any strong uptrend against the consensus. The theme is basically to install fear among the traders and to create a consensus opinion and thereby dragging the price against the overall consensus view.
And Of course, the theme comes with different stories every time which is most difficult to digest/interpret even by the regular traders.
Some of the different themes that the market played in the past to create a consensus view. Here are some of the most popular themes which installed fear among traders/investors in the past.
BrExit – Geopolitical tensions (2016-2017)
US – North Korea tensions (2017-2018)
US Drops “Mother of All Bombs (2017-218)
2018 missile strikes against Syria
Italian Bond Crisis (2018-2019)
Yield Curve Inversion (2019-2020)
Indian Economy Slowdown (2019-2020)
Probably the list could be longer if you dig the history. However, the latest theme is US – Iran tensions. Here are some of the latest stories on ongoing US-Iran tensions as per my view which could install a fearful consensus among traders/investors.
In order to handle these situations, I will be mostly going neutral by EOD until a clear view emerges positionally against the markets.
Tuesday’s market is one such example that the markets are not going to give any clue about the near term direction on EOD Basis but still brings fear among the traders, which is likely to get carry forwarded with their emotions.
US-Iran War Threats
Such threatening days are likely to continue in a near term which is very common during earning season. To prepare for such a kind of direction, I would rather take an intraday approach (long or short) or some hedged bullish monthly strategies (if positional).
Bull Call Spread Monthly Strategy
1)Whenever I think, 1)Emotions & ongoing tensions could be there in a very short term & market could be reacting to every small negative threat or negative news however I doubt it will last longer.
2)Whenever I feel, current geopolitical tensions are open information to everyone & media is desperate to give breaking news on that
3)Whenever I feel, taking a positional long trade with a stop loss is risky as the odds of stop hunting are higher in the very short term and more choppy price action or time erosion in near term.
4)Whenever my expectation about the markets in short term sentiment is bearish however medium-term sentiment is likely with higher odds to be bullish near to expiry, I prefer going for a simple bull call spread.
Here is a simple example where 12000CE ATM long call with shorting OTM call 12300 which brings a 1:1 risk-reward ratio (Controlled risk with controlled reward)
Bullish Vertical Spreads for those want to stay away from fear and to capitalize on the fear among other traders without any stops. Especially for those who think this series expiry likely above 12300 near to the end of the expiry.
End of the day stick to your rule book and avoid giving more importance to US-Iran tensions