Dont try very hard when the market is bad

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There are certain characteristics of successful traders and that is whole new article for another day. What constitutes a successful trader is not that simple but a very complex equation. But what I have seen in this business are some of the traits of successful traders and I what I have learned from my own experience and have employed successfully to the chagrin of others. Is this the holy grail? Read on..

When the market is down there is a great propensity by many people to attempt the beast. They try very hard. They labor up and down like a yo-yo. They cannot sit still at the desk and drink a latte and doodle Marlyn Monroe pictures on a piece of paper. They are conditioned to work, they are scheduled to get up and work hard and that’s how it works for the rest of the other occupations. That is a great work ethic, get up and and go to work and don’t miss out on a single days of work. Nothing wrong with that at all. In fact if you don’t do that you may not be able to keep your job or occupation.

But it does not works the same way in stock market. This is a game of opportunity and strategy. This is not like other kind of work in the sense we are trapped from 9-5 and we have to prove our worth. This is risk taking and some days there is too much risk out there. The markets hardly trade the way you want to trade they do their own thing and there is no control on that. There is nothing you can do about it either.

So on days when the market is bad there is a great propensity to try harder. People looking for trades all over and even griping there are no stocks to be found. They get to the desk only to find out the wind is blowing too hard for the lemonade stand to stay afloat till the afternoon. But they set it up anyways. There is storm out there but they are willing to brave the soul and drive home some beacon and cheese or bring in some milk or coffee to the proverbial cave. It is this hunter instinct in us that gets us in trouble.

When the NYSE board is showing you 435 stocks advancing and 2530 declining and the advance decline line is forcing everything way down, any attempts to go long will fail eventually. Even the greatest stocks will fail you. The leading names will crumple like saltine crackers in a soup. These set ups are flawed. These pattern which look good have an inherent weakness. There are lots of shorts out there trading against you and you don’t know it. The institutional computers are trading against you. High frequency traders are shorting the hell out like a machine gunner on a battlefield. Take a look at this Advance-Decline line on May 30 2012. There are 2100 names in the negative.

There is friend of mine who day trades successfully and I have seen him trying harder on days like those mentioned above. He gets infuriated and frustrated with his inability to find stocks to trade to the upside, because that is what most day traders do. He tries harder and harder and eventually sustains a loss.

I have been on this road myself when I started. I would go for the hunt everyday and I would lose money. Soon something became apparent to me. The days I don’t go for a hunt I would not lose ! It was not an easy lesson to learn, it was not easy to train myself that way. I always came home intact.

So what do you do when the market is not doing well ? Lets first define what do we mean by the market not doing well ? If you see all three major indexes in the red and advancing issues are 50 percent of declining issues that means if there are 500 advancing stock s on NYSE and there are 1000 declining stocks or a ratio of 1:2 the market is not healthy for long trades and the market is not doing good unless you are a short seller.

For the short sellers the market is extremely good and if you can short the hell out of something that is great. But for most folks you need to sit on your hands and wait. You literally sit on your hands and do nothing. Watch the market if you wish and wait.

The waiting game could be long. It takes time for the markets to recover from a plunge. Doing nothing for days seems like an awful waste of time right ? But it is not. It is a position. Staying in cash is a position and very strong position indeed. That is one of the characteristic of successful traders or retail investors.

Try hard when the conditions are favorable or statistical odds are in your favor to speak technically. Don’t try too hard when the market is down, but try very hard when the market is good. I know it sounds bit strange, but its the holy grail you didn’t find. Actually there is no holy grail its the experience that counts.

Dantanner is freelance journalist and a options trading specialist who frequently writes his syndicated columns on diverse financial topics

2 Comments For This Post

  1. Trading Market Online Says:

    There is always a short selling opportunity when markets are bad. I don’t see a strong reason to hold stocks when they are falling. Actually short selling is more profitable because markets usually fall a little bit faster than grow.

  2. lucy Says:

    It is always good to compare the graph of stocks in the market to avoid too much loses.Although, in this type of business you can never predict.

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