Staying Profitable in a Market on the Verge of Breaking

05/08/2015 6:00 am EST

Focus: MARKETS

Ryan Mallory

Contributor, Share Planner

Ryan Mallory of SharePlanner.com, offers some advice for those who are growing frustrated by what has turned out to be quite a difficult year for traders and urges that no matter how badly a trader wants massive profits, he has to put those wishes to the side and take what the market is willing to provide.

If you are growing increasingly frustrated with the stock market, fear not…You are not alone. There are plenty of traders wringing their hands and giving up.

The first four months of trading have been some of the most difficult trading you will find anywhere. Not because the market is tanking, or dropping like a rock, and it isn't because it is Taking-Off or Breaking-Out and the retail trader is being left behind.

No, far from it. It is a difficult market simply because it isn't doing anything.

Somehow italicizing anything makes it seem like it might just be doing something, but believe me, it isn't doing anything.

And it isn't like it has rallied 10%-and then pulled back 10%-that would be a welcomed development compared to the dull tape we have seen so far in 2015. This year has seen a maximum closing low of 3.3% below where it started the year and a top end move of 2.8%. That is about as tight of a band you'll find anywhere.

So how do you trade it?

Well, first off, you don't go 100% long or 100% short. In fact, on Wednesday, as much as I wanted to, I sold my position in SDS (2x short of SPX) for about a 3% gain. Not because I don't think this market can't go any lower from here, in fact, it is setting up to do exactly that. Instead it is because of the buying power that flowed into the market in the last hour of trading Wednesday, that was similar to the sell-offs that we saw on April 30, 2015 and then again on April 17, 2015. Both instances saw some heavy buying come online right before the market closed only to see a heavy bounce the following day.

As a result, I am going to walk away from that position with a profit rather than risk it Thursday on the possibility that this market bounces. And if it does bounce it will only give me a better opportunity to get short on this market once again.

Staying nimble in this market has been absolutely critical-Cash is King-especially when it comes to staying profitable this year. No matter how badly you want massive profits, you have to put those wishes to the side and take what the market is willing to give you instead and only trade a few positions at a time while the market tries to figure itself out.

By Ryan Mallory, Founder, SharePlanner.com

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