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VIDEOTools for a Broken Market
Five ways to better handle this stock market.
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Sometimes in the markets you must simultaneously forget everything you've ever learned about trading while trying to recall every trade you've ever made.
What I mean is that the markets are currently bucking many known systems -- TAs, fundies, news, upgrades, and anything having a remote connection to logic, etc. On the other hand there have been times like this in the past when one can manufacture some concoction of brains, guts, instincts, and a predatory will to win no matter what the opponent seems to be able to dish out.
Aside from very artful/strategic bobbing and weaving, there are few tools to fight a "broken market".
1. Cash (or margin buying power). High levels of cash are the best defense but many people seem very unwilling to buy at opportune times. So cash is great for the nimble and proficient trader. It can actually freeze the marginal player sometimes as it's addictive to watch stuff go down when you’re not involved; you feel like you're getting richer by the tick. Then, as the turn comes, the marginal buyer says: "Okay, when I see those lows again I'll buy." Yet they rarely, if ever, do.
2. Partial positions. In lieu of cash, I trade with smaller positions and keep them partial while setting very defined price objectives for where to buy and make sure I keep a good distance between price points.
3. A fantasy price or two. Then, no matter where the market goes, I know what I'll buy and what seemingly crazy prices I’ll pay no matter what the market is trading at.4. Time and patience. If you have confidence in your picks and play by your own time frame, you can keep a cool head while many others are losing theirs.
5. Don't force trades in either direction. This is most important. In times like these I want to feel more certain and basically "locked in" or even in the zone. If I'm not feeling like that I just don't pull the trigger. Case in point, the Visa (V), Bank of America (BAC), and Mastercard (MA) trades have all felt that way. On the other hand, I've wanted to own some ProShares Ultra QQQ (QLD) since Tuesday, but haven't felt totally certain that I’ve nailed the timing just yet on that position. This last piece could just have easily been included in the patience category.
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