The e-mails I have received over the past week tell me that many of you are confused about how to play this market. Many of you see some good setups, both long and short, but are afraid to pull the trigger because you do not know which way the market will turn.
Guess what guys? I don't know which way the market will turn either. I do have a bearish bias, but it's not strong enough to go "all in" with short plays. Here are some tips on trading this market:
1. Focus on individual setups rather than the overall market. If a stock is showing the perfect long setup, go with it. Don't worry about the market.
2. Play a variety of long and short setups, with close to a 50/50 ratio of longs to shorts. This way you won't be caught with your pants down if the market turns on your positions.
3. Keep tight stops at logical spots and let profits run.
The idea behind these three elements is you will be well positioned for a move in either direction. If the market tanks, your shorts will make lots of money while you will only take small losses on the long (the same applies if the market takes off on a bull run). A few big gains in stocks positioned with the market will more than negate the losses and could provide for a very profitable month.