Wednesday, August 29, 2007

Why Running Away Never Won Glory or a Fight

Fight with valor,
and with a sense of shame before your comrades.
You are less likely to be killed with a sense of shame.
Running away never won glory or a fight
Homer, The Iliad

Lately I've been hearing a lot of traders say it's a "good time to pull out of the market" or it's "time to take a vacation". I think this is nonsense; a cowardly approach to running from a fight that could make you a lot of money.

A scared market is the best place to use your edge. Fear takes over rational thinking and many market players, even the best of them, trade irrationally. That's where the cold blooded rational player can pounce.

Think about how easy this "scared" market has been to trade, as long as you did not get too emotional. It's come down to this:

1. Short real estate, financials and indice ETFs as they bounce towards resistance

2. Buy the outperforming momentum stocks on weakness and strong breakouts.

3. If you are more risk averse, short overbought momentum stocks and buy oversold dogs.

It's been patently obvious that that this simple strategy has been the way to go. Yet many have traded scared, allowing fear to take over rational though. If you can't control this emotion, then by all means, take a break. However, if you can keep your adrenal glands in check and trade with your mind, this is the absolute best time to trade.

{Note that I am not saying a trader should throw caution to the wind. In this type of market, you have to honor your stops and only trade strategies that are intimately familiar to you. I also would not advise trading if you are a beginner, have not researched your proposed stategies or have not shown an ability to make money in the markets.}


The Market Speculator said...

A quick note that I bought 400 shares of TOL at $21.11 and exited my FLR position at $23.89. I also went short NUE at $52.56 and bought SDS at $55.90.

David said...

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I have learned a tremendous deal from your postings and I look forward to learning more. Keep it up!