Friday started with a bang as the futures were up 0.8% on news from China an Europe relative to their economic picture or should I say, there willingness to provide stimulus in the form of bond buying and interest rate cuts. This prompted the question for me, what does that have to do with Intel? Apple? Amazon? or any other stock in the US? Indirectly I get that it will help these multi-national companies if the economies improve globally. Directly I don’t get how it helped today push prices up 1% or more on stocks? It is news like this that should help you as a trader/investor understand the reaction of your portfolio and or individual holdings within your portfolio. Today’s open and the first hour of trading offered the opportunity to lock in some profit on short term trading positions. If you bought oil, gold, China, Europe or any number of assets that were in oversold conditions the last two days, Friday gave you a gift, your profits in one day. Take some off the table, keep some and raise your stops. The point being if you get what you want from the market learn to take it and say thank you. Don’t start rethinking the trade and changing the objective of why you bought it to begin with. Stick to your strategy and honor your trading plan. Nobody knows what tomorrow holds relative the markets. Stick to what you know and trade accordingly.
Earlier this week we talked about the need to create and build disciplined trading strategies. We also discussed that building them is the easier part of the equation, it is honoring the strategy and sticking to the discipline every day that the strategy requires to be successful, that is the hard part. Too often trading days like Thursday and Friday turn us into a three year old in a room full of multicolored bouncy balls. We run from ball to ball wanting to bounce them all and never deciding on any one ball to play with. Markets moving higher have a tendency to play with our emotions and drain our logic. The key is having a clearly defined strategy for every investment we add to our portfolio and then managing that investment according to the strategy. Yes, there will absolutely be times that you could have made more money had you not put your stop at a specific location or sold when you hit the target or any number of scenarios we can think of. You don’t tweak your strategy while you own an investment your tweak it afterwards by applying what you learn, testing it with paper trading, then testing it further with small position sizes until you are comfortable with the results, then you can fully implement it in your portfolio. Build a simple process for testing and refining your strategy, and that is not during the heat of the trading battle.
During my thirty plus years of trading personally and professionally there is one thing I know to be true, and it changed my trading forever… the strategies I use in trading my money must be mine! In some ways that sounds blatantly obvious, but in reality we all learn to trade or invest our money from a mentor, reading books, hiring a professional or trial and error. In doing this the learning curve is smaller, but it also can leave out a key principle for managing money based on a defined strategy… making it your own. When you learn to adapt the strategy to your personality you have greater confidence in the process and you achieve greater levels of success. Learn to do your own trading… make sure your strategy is yours mentally and you will have a greater level of success with the process.
If you didn’t have a chance to attend the “Creating a Disciplined Strategy” workshop last week we have the recording available. You may also be interested in the three upcoming webinars that will break this concept down into specific strategies we have on our website that I have used personally for years. The first in the series will be Tuesday, December 2nd on the ONLY ETF Strategy. We will cover how to trade ETFs Only in a portfolio to make the process simple, avoid news traps, avoid earnings traps, keep it simple and scan the universe of ETFs based on a defined strategy and implement the trades. Just click on the link to register.