The more a person learns about the four pillars of investing, the more important risk management becomes. Today in the market we saw evidence as to just how important risk management is. The market had a lot of shorts that we had covered with stop losses.
I believe this scuttlebutt could be due to the bad job numbers that have recently come out. As I discussed in a previous post, some believe that the low job numbers could be good because they’ll keep interest rates lower. But keeping interest rates lower is merely a Band-Aid for bigger issues within the market. Read more about this issue here.
Emerging Pennant Pattern
In my technical analysis of the market, I’m seeing what may be some higher highs and perhaps some lover slows. It’s possible that we’re seeing a pennant pattern beginning to emerge. If that happens, generally these patterns break in the overall direction of the market.
Using Risk Management
Sometimes the market is really easy to call, but others are tougher. We’ve seen a lot of mishmash in the market recently. I might not always predict the market with 100% accuracy. Technical analysis is useful to see patterns emerging and identify the support and resistance points.
We’ll use support and resistance points to set up our risk management. Today in the market, risk management is important in case the pattern breaks and drops unexpectedly. We need to have our stops in the proper place.