Monday, May 02, 2005

Resisting Urges

Watching and trading the market full-time offers tremendous opportunity to capture profits. Something is always on the move, and to profit, you only need to catch a piece of it. With daytrading buying power being 4:1, there is also leverage at your fingertips to place the big bet when you think it has arrived.

The past couple of weeks, the market has flopped back and forth on pretty much a daily basis. As I write, the prior 9 sessions each went different directions! This is not the kind of environment where I find it appealing to place the aforementioned big bet. The market is never easy, but there are certainly better times to have a trading bias than right now. Television guests are willing to make big claims about where the market is going for the next few months, but the truth is that none of them know. I am purposely leaving my television off to avoid listening to such opinions for most of the day. I might catch some pre-market news or the economic releases, but I have no interest in listening to Joe Fund Manager who simply wants to beat the market (even if that means a negative return). My objective is profits every month, not to simply “outperform” the S&P 500 by the end of the year.

Range-bound markets have a way of getting traders to force trades, which rarely works. Avoid the urge to be in trades just for the sake of activity in this choppy market. Avoid the urge to place the big bet in hopes of catching the absolute bottom of this year’s down move. Avoid the urge to guess how the market will respond to earnings on a particular stock for the overnight home run. The fact of the matter is, for every home run you get lucky on (and earnings plays are about luck), there will be a number of strikeouts to offset that isolated success.

So, as we watch this market go back and forth and we wait for better signals that a larger move is coming, I want to stress the same thing I’ve been saying for weeks now: BE PATIENT! A lasting move, a REAL move will offer plenty of chances to jump on board and deploy capital into the market. Until then, resist the urge to be active and book giant profits, because they are much harder to find at the moment. Quality chart patterns are much harder to find in this environment due to the complete lack of momentum. Instead, begin to plan how you will react to market moves once they do arrive. That is likely the best use of time right now unless you are scalping the small moves intraday. Soon we will have our chance for swing trading larger and more aggressively, but right now the current environment simply calls for lighter trading and more planning.

Have a great day!

The Stock Bandit