Market participants hopping in anticipation from the current economic data release to the next creates volatility in the market that can create pitfalls for traders.

“Cooler” than expected U.S. Consumer Price Index (CPI) data yesterday sent the stock market racing higher. Today the market, while higher across the board, dropped back to a choppy pattern.

Traders were chasing the next move up or down throughout the day.

Chasing stock market momentum is ‘kiss of death’

Even after the sharp rally yesterday and closing the week with solid numbers, the overall stock market is trending neutral, or choppy.

The stock market is still trading under key volume and price signals at the first of the year, according to Raghee Horner, Managing Director of Futures Trading at Simpler Trading.

“We are still in the bearish hemisphere,” Raghee said. “I am not getting bullish at the highs, but rather looking at where the CPI is setting up the short entries.”

Across the board, stock market results to close the week were some of the best since June.

In the market today, the Nasdaq jumped to 11,323.33 points for a 1.88% spike while the S&P 500 followed by rising .92% to 3,992.93 points. The Dow closed at 33,747.86 points to gain .10% (adding 32.49 points on the day).

Raghee cautioned traders to maintain an even strategy as the market rises and falls. Market participants are “chasing momentum,” and in a choppy market this is “the kiss of death,” Raghee said.

She noted how the CPI “cooler” – less than expected – inflation numbers have many market participants expecting the Federal Reserve (Fed) to be less aggressive with plans to raise benchmark interest rates.

Positive news doesn’t push Fed to pivot

Market participants seem too anxious to read any “positive” news as a sign the Fed may pivot off its hawkish stance.

Raghee cautioned traders to be wary of chasing the market and relying on such hopeful sentiment.

Raghee continues watching Fed actions because if there is any indication the market isn’t moving the needle as the Fed wants, officials will start lacing their speeches with hawkish hints.

“Remember, we still have a lot more Fed rate hikes coming,” Raghee said. “It’s difficult to say it’s time to be up, up, and away in the markets.”

The Fed is expected to raise interest rates again at its December meeting, and continue the hikes into early next year.

Day trading risk management helps Simpler’s team

Raghee shared how she continues to focus on day trading chart patterns while waiting on opportunities to execute short setups into resistance, and not chase a fast, short rally like this week.

She is open to shorting key sectors, but is wary of how this market is moving – fast gaps down and sharp rallies higher.

Holding swing trades overnight at this point – due to uncertainty in momentum – can be daunting and require expensive setups, Raghee said. She’s open to short side plays, but being cautious.

Day trading risk management has helped Raghee and the Simpler Trading team navigate this wild market.

“We have a choppy market on the indices and we’re reaching overbought,” Raghee said. “There are also a number of (key sectors) where we have a down trend.”

Day trading affords Simpler’s skilled traders with strategies that can keep them participating in the market despite market volatility.

“There is a lot to like here,” Raghee said. “We’re going to continue to pursue opportunities on the daily (chart) because these are finally, after a lot of months, coming back into focus. We finally seem to be getting some focus on the daily for some swings.”

Prepare to shift focus, adapt to market moves

Traders must be prepared to shift their focus as the market shifts.

“We have to assess each morning anew, be able to acknowledge that much can change in a day,” said Henry Gambell, Senior Managing Director of Options Trading at Simpler Trading.

Often traders work hard to lay out a trading plan for the day and the market has other plans as soon as the opening bell sounds.

“You have to recognize when that previous way of thinking is not what the day is going to bring,” Henry said. “Adapt to what you have in front of you and use the market signals that present themselves.”

This market has shown resilience, and uncertainty, as it has trended lower since the beginning of the year.

“It’s very hard to tell you what tomorrow will open up to,” Henry said.

Traders should be cautious of chasing fast upside moves as the market continues to react to economic data and the Fed. A lot can happen from now through the first quarter of next year.

“I believe the markets are trying to put in a more formidable bottom,” Henry said.

Traders don’t want to be locked into an embrace with the next wild swing when the stock market decides to hit bottom.