Don't Sit on the Sidelines

03/12/2014 10:00 am EST

Focus: STRATEGIES

Deron Wagner

Founder and Head Portfolio Manager, Morpheus Trading Group

Deron Wagner thinks you shouldn't wait and try to catch the top or bottom before trading, but rather just follow the market's momentum.

ROB:  Often, in a bull market, investors will find themselves flat-footed, watching the market go higher, and I’m here with Darren Wagner, talking about the psychology of watching that market go higher and not being able to pull the trigger.  What advice could you give the traders finding themselves in that situation?

DARREN:  That’s a good question, Rob.  Actually, it is a very common phenomenon, especially with people that are new to trading.  They have a tendency to feel like they have missed the entire move so, as a result, they sit on the sidelines and watch it go higher and higher and meanwhile, the pullback that they are waiting for never comes.  At the same time, one needs to be a little bit careful.  Instead, if they’re not buying at the top, so I guess the best advice I can give you there is don’t try to catch at tops, and don’t try to catch the bottoms.  I used to worry about – in the beginning – if I didn’t catch the bottom exactly.  I would say well, I don’t want to buy now because two days ago it was three points lower.  But to make seven points out of a 10-point move is still better than making zero points out of a 10-point move; so as long as the momentum is there and the strength is there, then I would say it is important to make sure you just follow the market momentum.  The other thing that I wanted to talk about a little bit was in regards to the importance of having a trading plan.  Having a trading plan really helps one to follow the momentum of the market.  If you don’t have a trading plan, you tend to be too emotional and just say well, it looks like it’s too high or it’s too far; but if you have a trading plan with specific rules such as there needs to be a certain amount of momentum in the market and it needs to be high-volume accumulation days; it needs to be leading stocks that are holding up well.  Then, you are able to just objectively – almost blindly – follow your plan with the faith that you know that it works.  We have a very clearly defined trading plan, and it doesn’t matter if your plan is exactly the same as what I use but important just to have one.

ROB:  Well, that is spectacular advice for traders watching a bull market.  Thanks, Darren.

DARREN:  You’re welcome.  Thank you.

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