You’re Smart, Congratulations! Unfortunately, I Have Some Bad News For You

bizmanthinkingRandom Thoughts

You’re smart. How do I know this? Because you’re reading.  You’re not wasting your time watching cat videos on Youtube or “liking” your friends and peers vacation photos on Facebook while deep down you’re jealously thinking, well, look at these…. Well, I guess there is some glass in the house that I live in. Occasionally, I find myself guilty as charged, but we all need a little mindless activity now and then but I digress. For the most part though, I’m convinced that you take action.

ActionClapperAction?

Now, before you start patting yourself on the back for being intelligent and motivated, I have some bad news for you. Trading isn’t a good fit for you. You might need to find something else to do or be willing to change the way you think. You got where you are (or where you will soon be) by taking action. Sometimes though, in trading there is little or no action that needs to be taken.

Taking inappropriate action falls into two categories: micromanaging existing positions and doing something where there’s nothing to do.

Micromanaging

When you do finally catch that big winner. You feel compelled to lock in the gains. You can’t go broke taking a profit right? Bullshark! That’s how most do go broke. To quote the old commodity adage: “They eat like a bird and defecate like an elephant.” Bad traders take tiny gains and huge losses vs. doing just the opposite. You take action in life but sometimes in trading, you have to sit back and let things work. See last week’s Dave Landry’s The Week In Charts for yet another “Dead Money Report.”

You Make Something Happen, Right?

You look for perfection in life but somehow, you settle for the mediocre in the markets. You try to make something happen in less-than-ideal conditions because that’s what you do. It’s amazing that some of the most successful people, look for perfection in life but settle for mediocrity in the markets. Again, you take action. Sometimes, the best new action is no new action. This isn’t easy for those who take control of their lives.

What’s That Beeping Noise?

hHere’s a secret from my stock section course: Stop trading stocks that look like electrocardiograms. Seriously, if you’re looking at a chart and you here “beep beep beep” in your head then it’s probably not a stock that you should be trading. Ask yourself, is this stock in a bona fide trend or emerging trend? Does it bounce around or does it tend to persist in one direction and generally trade “cleanly?” Yes, I spent another 13 hours and 55 minutes discussing how to pick the best stocks but if you just seriously look at your potential setups and ask yourself these questions you’re well on your way.  You’re welcome! Just missing one bad trade will pay for the course many times over (oops, did I go too far in my soft selling of my Stock Selection Course? Hurry sale ends today!).

But How Do You Know Something Is Trending?

I’m often asked to quantify trends specifically. How long? How much must it move? How do I know? Well, as I often preach, it’s not rocket science. As always, look at a market on a “net net” basis. Ask yourself, where was yesterday?, last week?, last month?, last quarter? and so forth….

Let’s use the Ps (S&P 500) as our poster child here. They haven’t made much progress since last Thanksgiving. Further, they are actually below where they were trading back in February. If you ever lose your way. Just draw some arrows on your chart. On the back of my business card I have the 3 trends clearly defined.

bizcard-frontandback

This serves as a constant reminder for me to not try to look smart and just follow along. That plus being called a trend following moron 15-years ago also helps.

I like to draw big blue arrows on my charts. Why blue? No reasoning other than my first paint program defaulted to blue. Now, before I digress too far, if the big blue arrow of the overall market is pointing sideways then you better make darn sure that you really really like a setup before putting capital into harm’s way. Pick the best and leave the rest. Don’t worry, I’m not going to soft sell the stock section course any more.

To The Markets

As mentioned above, the Ps (S&P 500) remains stuck in a range. True, the long long term big blue arrow still points higher but unfortunately, they haven’t made much progress in many months. Shorter-term, their climb back to their old highs seems to be pausing.

Ditto for the Quack (Nasdaq).

Although off its best levels, the Rusty (IWM) still had an okay day. Unfortunately though, it still remains closer to the bottom of its trading range so it has its work cut out for it.

The sector action is the good, the bad, and the ugly.

The good is that some remain at or near new highs. These include:  Drugs, Foods, Health Services, Insurance, Leisure, Materials & Construction, Retail.

The bad is that many like Banks and Durables remain sideways at best like the market itself.

And, the ugly is that many such as Chemicals, Conglomerates, Non Durables, The Semis, Energy, Manufacturing, Metals & Mining, Transports, and Automotive remain in bona fide downtrends.

So What Do We Do?

If you made it this far then you probably know what I’m going to say. Stay selective as long as the market remains in an intermediate-term sideways range. In my Core Trading Service, I’m actually recommending that no new setups should be taken today. Imagine that-paying a guy to tell you to do nothing. Well, I’m not going to blow smoke and try to “invent a trade.*” Doing the right thing—nothing, is difficult when you are successful in life. Now, you want to trade? Do the right thing.

Best of luck with your trading today!

Dave

*“Don’t intent trades.” Peter Mauthe