While I’m the last person to prognosticate where things are headed, there is a feeling I’ve gotten in recent days that says be prepared for volatile times ahead to the downside. That doesn’t mean being a perma bear and thinking you know for sure markets are going lower everyday, it simply means preparing yourself to take advantage of volatility when it comes.
I remember during the 2008 crash, previous unthinkable amounts volatility became normal after a while. SKF and FAZ moved $60-$80. A day. Both long and short. Several times during the day. As support levels were blasted through, new lows would print followed by gigantic bounces. Those times really were a day traders paradise.
Are we headed that way again? I don’t know. Nobody does for sure. The markets could keep rising forever. But that’s about as likely to happen as going to zero. Corrections happen. All I’m saying is be prepared to trade when the time comes.
For what it’s worth, here’s my thinking on the subject:
- Keep an ultra open mind on the direction and amount things can move. .85 moves will no longer be a great play. Multi dollar moves become the norm.
- Selling pressure comes in waves. Lower prices make even more lower prices.
- Fear is a much greater motivator than greed. I will for sure run out of a burning building, while I would not run into a conflagration to grab a million dollars. When the pain is too great, there is a” get out at any price” mentality.
- Fundamental analysis is meaningless. Technical analysis is hobbled. Momentum is everything.
- Profit taking will be the hallmark of your success. Even more so than now, take the money after huge moves.
- The speed at which new information is filtered in is increased. Violent moves happen in both directions.
- If needed, pare the # of active plays down. Focusing on two plays and nailing them may work better than spreading your attention over four or five plays. Things move fast. Do not turn into a slack jawed yokel staring blankly at your screens.
- Move more dollars into the trading account to be able to take advantage of bigger dollar stocks. They move more.
- As always, trade small spread, liquid stocks. Don’t get trapped.
- Work with market orders. Don't waste time with limit orders as you'll end up missing out. Level 2 info is useless to me normally, more so in these times. With liquid stocks, who is buying or selling is irrelevent.
- At the end of a trading day if you made more than you normally average in a week or month, do not gloat, boast or think you are superman. In fact forget about it because tomorrow is a new day. It is only the unique conditions giving you the gains.
- Cut losers quickly.
- Be robot like in the application of your trading plan.
Be quick or be dead.
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2 comments:
as always, thanks for the great posts. i'm working hard on the mental side. i am not very emotional while i am trading. But at the end of a day, where i grinded back and forth for no money, it takes a toll on my brain. it just feels like it is fried. my eyes burn, my mind is in a fog. is there anything you do that helps you relax the brain after the day?
J - well I think you have made an important step. It takes brain power to focus hard on your objective all day. Getting into the zone and making rapidfire decisions for hours requires a part of you that most people never explore. To exercise this ability effectively means working up to a pace that you comfortably sustain. Knowing when to quit when you realize you're not sharp anymore is vital as well.
Eyestrain can be reduced by making your chart backgrounds all black. Music clears the fog. Taking mini breaks, even closing your eyes and thinking about something or somewhere far removed helps soothe. I wrote a couple of days ago about the timetable I keep. It is all geared to keep my brain and thus decision making ability 100%.
Keep well hydrated and have fruits or low sugar snacks at hand so you body doesn't run out of gas. Rest well the night before.
Now think about if you can do all of these things and be super sharp right to the end of the day. Think about if the market maker or person on the other side of the trade is feeling fuzzy. Think about the advantage you now have. Think about the confidence that comes from that.
After the close I go a take a nap. Replay the days events in my mind. I let me subconscious work on improving any weaknesses. When you are in that space between sleep and awake, many issues can be resolved.
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