In these situations, markets will deceptively reward ineffective behavior (chasing) which can lead to a false sense of confidence. If you are in this coin, the best thing to do is reduce risk by taking partial profits until this thing produces a clear sell signal. If you are not in it, the best thing to do is WAIT for a retrace to the next support level.
Some key inflection points to consider: The 18 level is a proportional projection measured from the March low. Not only is it a psychological whole number, it is a location where the probability of selling activity is high. Even though there is no sell signal in place, this is the highest risk/lowest probability location to put on a new position. Buying into a potential top automatically puts you into a weak psychological position that often leads to exiting for a loss at the worst possible location (the low of the next support).
The 14.50 area is a minor support level as evidenced by the recent price activity in the area. A sharp retrace can find some support here, but it is important to WAIT for reversal structure in order to justify risk, because IF this level is cleared, the next inflection point is 11.50 followed by the 8.50 area. Can price retrace this far? It is possible, but the idea is to WAIT for such an opportunity, IF the market produces one. If not, the best thing to do is find a better opportunity in terms of reward/risk.
The herd mentality lures novice traders over and over again and is part of the market process. In order to win, you must not only be aware of it, but you must also know how to capitalize on it which requires counter intuitive thinking.
This article was written by Marc Principato CMT, Executive Director at Greenbridgeinvesting.com.