Today, I plan to share the investment insights Benjamin Graham, Warren Buffet’s mentor, gleane...
5 No-Nonsense Trading Tips
12/22/2011 8:00 am EST
Recent market action proves the importance of such items as staying patient, waiting for confirmation signals, and being willing and able to recognize when you’re wrong and get out quickly.
Last week, I wrote on my blog that we could see a potential market rally over the near term. Over the next few days, the market dropped for three straight days and none of the stocks on my watch list triggered upside buy alerts.
I have no ego when it comes to the stock market. It doesn’t bother me when I’m wrong because no one can expect to be right all the time. Being wrong is just part of the game.
Given enough time, almost everyone’s bias is correct, and sure enough, this week we saw strong rallies early on.
Here a few lessons from my predictions and having a bias in the market:
- When you find a great number of trade set-ups (as I did last week), let the market prove itself first before getting in aggressively
- Wait for a follow-through day (FTD) to confirm that the market is in a new uptrend. An FTD is when the market has a convincing up day (approximately +1.5% or greater) on strong volume. This usually occurs on days four through ten of an attempted rally. There is nothing wrong with trying to anticipate such a day (as I did over the weekend), however, you still need to wait for the day to occur
- It is OK to be wrong, but it is never OK to stay wrong!
- Even when we get confirmation of a new uptrend, don’t be in such a rush. If it’s a true rally, the market will give you plenty of time to make money. Remember, the fear of missing out is the downfall of most traders
- Cash is still king right now, especially because we are below both the 50- and 200-day moving averages on the Nasdaq Composite. Keep in mind that four out of five stocks move in the general direction of the market, and right now, we are still in a downtrend
Bottom line, there is nothing wrong with forming a market opinion based on the information it gives us. The key is to wait for the market to confirm your opinion before getting aggressively involved. And finally, if you are wrong, it’s no big deal because it won’t be the first or last time it happens.
See related: Minimize Losses Every Time
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