Random Thoughts
Back in the mid-90s (I'm from the 1900s), I was part of one of the first financial education websites. My Trading Service was born shortly thereafter (somewhat by chance, but that's a two-drink minimum story).
There was a lot of pressure for me to perform. The website (and me, to a much lesser extent, lol) got paid based on my analysis and, as I'd soon learn, even more accurately, when I recommended setups. Initially, I tried to "force the issue" in less-than-ideal conditions, but I quickly learned to go back to what I normally do: let the market come to me. If I'm not going to put my hard-earned capital into harm's way, then neither should my clients.
Whenever I'd recommend sitting on our hands, salesmen would call me begging me to recommend something, anything! I'd stick to my guns and wait for better setups and conditions. What I found fascinating was that if I recommended stocks that turned out to be turds, we'd hardly lose any clients. However, if I recommended waiting, we'd lose considerably more clients.
Most people craved action. That's perfectly normal and, in general, admirable. As I said last week, whether you're a lion or gazelle, when you awaken, you better start running. That's great advice for business and life, but in trading, not so much.
Over the years, I've had many clients quit right before (new) setups take off, often to the day. They tire of the waiting, and waiting, and waiting. They wonder why ("in da-F" implied) am I paying this guy to tell me to "do nothing?"
Looking back 25-something years, I sure wish someone had told me it's okay to do nothing. This would have saved me thousands of dollars by not chasing mediocre setups in less-than-ideal conditions. There's the mental toll too. It's hard to see the mother-of-all real opportunities when your head's stuck in the washing machine. Being flat will open your mind to opportunities when they come along.
Trading is a lot about being in the right place at the right time. When that time comes, you must be ready both mentally and monetarily.
Knowing when not to trade is the secret to trading. With a little experience, you'll learn to recognize when conditions are conducive and, more importantly, when they are not. And, right now, they're not.
Before The Bomb Blows Up
Friends and relatives never ask me about the market while it's doing well. They wait until they're down 30% or more and then call me in a panic. By then, it's often too late. The "bomb's already blown up." You're far better off exiting when things begin looking a little iffy than waiting until after the market implodes. Yes, the market might come right back, and that's frustrating. Sometimes it won't, and that's devastating. 50% or more "haircuts" are not that uncommon (don't believe me, scroll down and watch the Week In Charts). Furthermore, I'd be willing to bet that the frequency of nasty spills will only increase based on all the derivatives (and derivatives of derivatives) combined with the insane amount of leverage out there.
"Whipsaws are frustrating, bear markets are devastating. You can survive frustration."
Greg Morris
Is The Bomb Blowing Up?
Well, from a 30,000-foot view, vis-a-vis the TFM 10% System, the S&P is still in the "don't worry, be happy" zone, less than 5% away from the 50-week closing high (and all-time highs for that matter). The Nasdaq has become a little more questionable. It's now more than 5% away from its 50-week closing highs (which also equates to its all-time highs).
