By David Popper
Every family has traditions. Over Thanksgiving we typically travel to Birmingham, Alabama to visit my wife's family. This year was a bit different because my youngest was out of school for aweek while my daughter was in school until Tuesday. The long and short of it is that my wife and son flew while my daughter and I drove. On the way, we spent the night in Bainbridge, Georgia. We ate breakfast at the local greasy spoon. It was a popular spot. Most of the men wore flannel shirts, blue jeans and a John Deere baseball cap. No one had any idea that the Nasdaq was in a horrible trend and quite frankly no one cared. They laughed, visited with neighbors, and did not rush to get to work in order to squeeze out one last dollar.
Bainbridge would not be my choice of places to live, but I couldn't help but be impressed by the relative simplicity and peacefulness of their lives. Notwithstanding the fact that my income is probably larger than the average citizen there, I could not say that my life was better. One person came up to our table to talk politics. His take on things emanated from simple common sense, as opposed to tortured political rhetoric. After we left, I couldn't help but consider that as a trader, I have oscillators, proprietary indicators, Bollinger bands, moving averages and other aids galore, but sometimes substitute these for simple common sense.
Sometimes simple common sense can allow me to see through the fog and correctly analyze my situation. So what is the situation? Well in these last two months I have given back a lot of money. At this point, I wish that I never heard of fiber optics and chips. I have to remember, though, that I would not have made nearly the amount of money that I did but for fiber optics and chips. My mistake was listening to the glowing reports instead of watching the charts and maintaining a selling discipline. The thing that I did well, however, was to monitor my greed by maintaining a decent amount of cash to buy the dips.
So, as a position trader, who can't watch the machine all day, what are my plans? Just stay the course and continue to undergird my fundamental and technical analysis with common sense. Common sense is what will save your account when everyone else is losing money. At this point, we have experienced many two day counter- trend rallies. These rallies are bear traps which are designed to catch anxious/desperate traders into jumping too soon. Sure, short term professionals like Austin and Jim can make money in these conditions, but you have to remember that they have the time and resources to play the game during these compressed rallies.
If you are only experienced in playing the long side of the market, it is best stay out of the market now, or if you can't resist, place only a small portion of your capital at risk. Wait until the general market conditions are right before committing major funds. What do I mean by favorable market conditions? Utilize your chart reading experience. When the Nasdaq, your favorite sector, and identified stock all have charts that are favorable, it would be time to heavily invest. Until then only play hit and run with a little bit. Remember that most people are wrong about the market most of the time. Most analysts upgrade after the stock has already topped. They typically downgrade after the stock is already hit. The only entities that they are protecting are themselves, their clients and the companies that used them in the underwriting process. Brokers are often wrong. I currently am involved in cases against brokers, where horrible advice was given and hundreds of thousands of dollars were lost.
Often the emotion of the moment and the market's panic of the day are just noise. Your best bet is to tune out the noise and concentrate on trading only top quality stocks when the technical conditions are correct. So what if you blew it last time and are underwater in some positions? Just remember that quality stocks did not cease to be quality just because the market is experiencing a temporary spasm. Quality stocks do go up over time. Yeah, you may have lost a few months of profit, but you are not out of the game. Don't lose heart and don't try to make it all up at once. Stay the course. Maybe you can make up some ground with OTM covered calls. Most importantly, be patient and take a long term view. Do not take untoward risks with your account. I know that it isn't easy, but it is the common sense thing to do.