Getting to Know Stocks
Is "speed-dating trading" right for you?
I recently read an article discussing the growing popularity of speed dating, which involves 45-minute group sessions where individuals rotate from table to table, spending approximately two minutes with each person before moving on to the next in an attempt to find someone they'd like to see again later.
For most traders the ultimate desire is to always be in an environment where stock relationships can blossom over time, yet there are times when the market environment isn't safe enough to allow us to really get to know individual stocks. Rather than a casual dating experience, long walks in the park and the potential for a longer-term relationship, we're forced into a sort of speed dating, hopping from one brief encounter to the next.
Whenever an environment turns and "speed-dating trading" becomes the prudent course of action, a trader (who has already taken proper precautions in order to protect themselves from capital deterioration) has two options:
1) Wait it out on the sidelines: Due to time constraints or style conflicts, most traders don't have the desire to engage in the short-term trading that is required when the environment is highly dangerous. Rather than force this, a trader should choose to simply wait it out, researching the ideas and opportunities available for the next medium-term run to the upside or the downside.
A patient trader can easily pick their spots, improving their risk reward and enter knowing they will not have to change their strategy in a few hours or even a few days. For most, pursuing the patient path will always be the best course of action.
2) Embrace the action: There are still others who, regardless of the environment, desire to participate with a shorter time frame. This is absolutely fine, but it is imperative that the trader embracing the short-term volatility remember to not draw too many conclusions and remain open-minded to whatever longer term trend may develop once the short term volatility is complete.
I have the unique opportunity to embrace both sides. Most of this is due to me simply being able to be in front of the computer day in and day out, but also is sparked by my desire to capitalize regardless of the environment. Many can't follow this same path, though, so I strongly encourage all to stick with what is comfortable for them and play the style best suited for their time, personality and risk tolerance.
"Speed-dating trading" may be efficient and right for some, but others should not force this style and wait patiently until the environment calls for those afternoon strolls and classic courting. At the end of the day, it is most important to know yourself, your style and what really works for you.
There are some potential longer term relationships that may be setting up and at present I am focused on the financial sector through stocks like Citigroup (C), Washington Mutual (WM), Merrill Lynch (MER) and Bear Stearns (BSC). Each stock looks to have at least put in a temporary bottom and are now starting to digest the recent run. Typically what I like to see is a series of higher lows and higher highs. At this point, I would prefer to see a strong dip back down on each of these names putting in a higher low and setting up for another prudent entry. It is early, but so far I like what I am seeing and am almost ready to commit to more than a fling. Regardless of how it turns out, I won't be singing because that just isn't my thing.
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