Monday, March 7, 2011

Stay away if you can

Staying away from the markets requires much more skill and discipline than what is involved in entering a position. And that's exactly what makes the market action in the last few days so hard to trade in my opinion. If you are a day trader, you have got to be loving the volatility of the last few days but if you are a swing trader, chances are you going to find yourself stopped out repeatedly irrespective of whether you are taking long or short positions, which is like death by a thousand cuts.

Looking at the index charts, one could say that the markets are making a slow topping out formation, at least for the short term. But how has that worked out for the bears in the past few months? Also, for those who rely on charts and technical analysis to give them an edge, how much of an edge do you actually have in a news dominated market? These are the questions one has to consider before betting big, either in short positions or long positions. Personally speaking, I have ~ a 75% cash position which helps me sleep easy at night. Agreed, I might miss a big overnight move in either direction but that's a small price to pay for peace of mind.

Take care and good luck!


ppmoore said...

Good advice

BIll said...

Its definitely a no win market, with the markets se erely overbought, they are being artificially propped up by QE 1 and 2. When you employ keynesian ecomonics the more you self correct you force markets to the edge of a cliff where you either grow wings and soar or you fall to the very bottom. I consider WWII the first example of this and the preceeding market collapse in 1938. All those gov programs and assistance and the markets still fell 8 years later to nearly 1930 lows. You cannot guarantee growth, no free market can. You either are a communist market that manupulates currency and growth or you have to eventually stop printing money and giving handouts and see what happens.

positiontrader said...

Insightful as always Bill. I have started using shorter and shorter time frames for my trades and making sure I end the day with a comfortable cash position. Still not ready to go short until I see a clear breakdown but it certainly seems like the days of easy money are gone, at least for the present.