For the great majority of traders and investors out there, trading in these turbulent times have been difficult and taxing on the mind and body. I consider this market, much more difficult than anything I’ve traded in recent memory – even 2008. The reason being is there is absolutely no overarching trend defining this market when you look back on 2011. Instead what you have ares series of major reversals that really has led to nowhere. Even with the extreme downturn that we saw in late July and all of August, the market is barely in the red for the year.
So what I’ve done below is provide some observations, beliefs as well as areas of strengths and weakness in my own trading. My hope is that it can perhaps bring to light areas of weakness in your own trading, or help you build upon your known strengths.
Here’s the breakdown…..
1) I need to do a better job of being patient for the ideal entries – this is a market that show little forgiveness, and about 70% of the success you experience in this market, has everything to do with the entry prices. This isn’t the ’90’s where you just buy a stock no matter how high it is, and just selling it to the bigger fool as it moves lock step higher.
2) Sell into Strength, no matter how worried you are that it might go higher, and cover into weakness, no matter how worried you are it will go lower. The sum of your trades will benefit much more from this mindset. And that is more important than the one trade that you hung in for and it make you a few extra percentage points.
3) Take the losses quickly – good rule of thumb on day-trades – if it doesn’t do what you expect it to do in the first 30 minutes of the trade, then get out of it. Your best trades almost always does what you expect it to do fairly quickly.
4) Careful with doubling down into losing positions – I did this throughout August with good and bad results. Overall I came out ok, but it increased the stress in my trading and I broke a few of my rules of discipline in the process.
5) Similar to #2, when you have some solid gains in your portfolio, STOP! Move On! Quit looking for more out of the trade. Your risk is increasing exponentially, and it eventually becomes your undoing. At least sell 1/2 the positions. Just tell yourself “Move on people, nothing here to see!” By the way – this has been my achilles heal – constantly having 2008 in the back of my mind and the volatility of late, it is very easy to continue holding after the market moves 3-4% in your favor, expecting it to give you even more, only for it to reverse.
6) Stick to the stops – elementary and often preached here I know – but I’ll say it again. Don’t be hero – there are graveyards full of wannabe Wall-Street Hero’s. You gotta be willing to put down the ego and retreat when you have the opportunity.
7) Make it a goal to capture 75% of your known profits on the trade. I’m not talking about ultimate or potential profits – but 75% of what you could have come away with at any point in time while you were in the trade. Stocks will always move favorably or unfavorably against your original position after you get out of the trade – don’t take it personal – it happens and will always happen. Instead – focus on what you can capture profits in the “right-now” and then move on to the next trade.
8) If you don’t have plans to jump back in the stock later under certain conditions later on, then get away from the stock you just got out of – completely disassociate yourself from it. Monday Morning Quarterbacking will be your undoing next Sunday!
9) Trade in the present reality – not in “What If’s” – that means quit looking to add up how much mula you stand to make in your position(s) if the stock moves “$X” amount higher. When you do that, it tends to be the ideal opportunity to get out of the stock.
Finding great setups is the easiest part in this market – managing the trade and more importantly your emotions in the points mentioned above is what makes the difference in trading and whether 2011 will turn out to be a profitable year for you.