Momentum Monday – Happy 2022!

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Happy New Year! Let’s make it a great one!

I am not going to make any specific predictions. What I am sure of is that the year will be full of surprises and that the crypto markets will continue to be way more volatile than the stocks markets. More volatility means better opportunities for those who know how to manage risk and more headaches for those who don’t. There will be thousands of three-to-five-day 10-20% moves and they will all start the same way.

The last few days and the first two three weeks of every year stand out with big mean reversions. Some of the worst-performing stocks and sectors suddenly wake up and attempt a powerful rally from the bottom of the ocean. We caught a glimpse of this last week. Chinese stocks, which were some of the dogs of 2021, had a big 5-10% jump across the board on Thursday.  More often than not, these end up being “dead-cat” bounces that fizzle quickly but while they last, they can deliver for the prudent short-term speculator.

At any other time of the year, we are better off looking and trading momentum stocks that are close to their 52-week highs. They allow to trade with the established trend (which means trading with an edge) and offer much better risk-to-reward opportunities. But in this brief window at the beginning of the year, the pumpkins can become Teslas and the rockets from the past year can take a break.

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Disclaimer: Everything I share is for educational and informational purposes only and it should not be considered financial advice.