Why I Often Look at Panics as Opportunity

5 Mar 2021

Panic selling and panic buying usually show up at the end of a move. Here I us a simple "indicator" I made to help identify if a move is particularly special.

First, I have always like ATR (Average True Range) as a useful reminder of what to expect and at one time I even used it to calculate my position size for risk purposes. I wrote two little hybrids of this just for one bar extremes from the previous close. One is for the buying climax and the other for the selling climax.

As I explained in the video, I worked for many years as a "specialist" - or market maker on a stock exchange floor. In this job, I regularly had to buy if nobody else would and take the sell side if nobody else would sell. This typically had me short near the short term highs and long near the bottoms - often not on purpose! But it does explain how the pros are often on the right side at market extremes. Pros do tend to "fade" extreme moves meaning they take the opposite side of panic moves out of experience.


As Mr. Buffett says, "be fearful when others are greedy and be greedy when others are fearful"

Happy trading,

Rob


Here is the code for my scripts

// This source code is subject to the terms of the Mozilla Public License 2.0 at mozilla.org/MPL/2.0/
// © rbarnesy

//version=4
study("LR from Prev close")
plot((close[1]-low)/close[1]*100)


// This source code is subject to the terms of the Mozilla Public License 2.0 at mozilla.org/MPL/2.0/
// © rbarnesy

//version=4
study("HR from Prev close")
plot((high-close[1])/close[1]*100)