Developing a thesis and watching it materialize can be a difficult proposition for many traders/bloggers who lack the patience to see it through. Case in point: We are seeing some early selling this morning in some of the higher beta areas of the market, such as with the solars. In light of that selling, it can be quite easy to get panicked out of shares you bought because you thought the solars were bottoming.
I did not buy any solars yet, even though I think there is a pretty good chance that they are, in fact, putting in a major bottom here. Instead, the idea was to watch the process play out, if for no other reason than to mitigate downside risks and the potential to get panicked out. In other words, bottoming is a process and often an extremely volatile one at that.
For week now, I have been pointing out the potential for a massive inverse head and shoulders bottom on the weekly chart of TAN, ETF for the solars. While the rush to buy solars in recent weeks has subsided given the recent sell-off, I am more focused on the bigger money to be made, should the solars actually make a higher low here for a right shoulder.
True, the pattern could easily morph into a large base, but then again that is all the more reason to not get caught chasing these things when they get too extended, else wind up holding the bag. At the end of the day, patience and precision are the two most important aspects of my trading style. Applied to the solar thesis, it is important to not get jerked around with the volatile swings of a potential bottom when there is much more at stake should the thesis prove correct.