Monday’s session was a doji range day with the S&P 500 (SPX) repelled at the morning high ...
Don’t Trade for Trading Sake
12/23/2009 12:01 am EST
The mind tends to come up with all sorts of nice compromises for handling lousy conditions and, generally speaking, "compromising" is a slippery slope in trading. In the end, quality and core principles tend to get compromised instead, so we are usually better off having a more black and white attitude about the issue.
Of course, in order to do this, you need a clear system to judge the market environment, and that in itself is too large a topic to address here. To get you started, however, the Pristine method lays out the critical underpinnings of any such system by dissecting the basic market unit, and then the transitional phases of the market. Add to this a series of criteria based on the various market internals and you have all the tools you need to design a standardized means of rating the market.
Once you've done that, you then need to decide what actions you intend to take (or not take) once your system gives you an unfavorable rating. The first two things to do are:
1) Stop trading! Really, this is definitely an option. As I've already explained before, you're actually still trading when you stop hitting buy and sell buttons, but remain mentally engaged with the market. This is a deliberate trading action, and one that takes more strength and self-discipline than most people initially realize.
Certainly, novice traders should rely on this option heavily in the beginning. Please remove from your mind the idea that you need to "wrack up" a ton of live trades in order to gain experience.
Remember, the title of this article is: “Don’t Trade for Trading Sake”
2) Shift your time frame and trading style to one that better suits the current market environment. In most cases, this will be a downshift to a smaller and faster time frame, though not always.
But here's the deal with this one: Make sure the style in question is a winning style for you! I know this seems obvious, but the reason I say this is because it's very easy to believe that "theoretically," something ought to be working based on the way the market is acting. In fact, you may even know people who are succeeding at the technique in question. But unless your statistics show that you are successful at it, don't start hitting order entry buttons.
After all, why not paper trade the approach first, until your stats are profitable? Even then, try it with 100 shares, just so you get used to the execution, and so that you are not glossing over slippage with your theoretical stats.
The point is that I want to remind you that being busy as a trader is only useful if you are making money. Being active just to be busy is not helpful—especially if you are actually losing money. So it's fine to shift over to another style when the market no longer favors your primary approach, which is something I’ve written about recently as well. Just make sure it's a style that you have mastered; and if you haven't yet mastered it, remain in practice mode until you have.
Until we meet up again, stay safe and remember, no one is making you trade. So, only take trades and investments that line up with the highest probabilities that fit into your specific plan!
By Ron Wagner
Related Articles on STRATEGIES
The Dogs of the Dow strategy seeks to take advantage of investing in well-established, blue-chip com...
I am 14 months into working on my new book, The Intellectual Investor, which is far from being finis...
In my experience there is no such thing as a single indicator that catches exact bottoms and tops in...