The weather is becoming really beautiful now, highs reaching the 80s consistently (where I am located). Everyone is ready to get back outside and enjoy this weather after being cooped up for the winter, I know I am. But with everything, you have to plan your activities and to go outside when it is going to rain would be (sorta) silly. Similarly, trading during a ‘storm’ (when it is not conducive), will be detrimental to your long term success in the stock market.
Every trader that is going to be profitable long term is going to need to have a process (a set of rules) that they follow when considering to place a trade. The best traders though not only have a process, but have a process that tells them when it should be used and when it is more successful. If you’re a trader and look at the market in the same everyday (without any sort of inclination to the climate of the stocks), it would be like looking at each day’s weather patterns the same way with no regard to whether it is going to be snowing, raining or 100 degrees – it’s just plain foolishness.
I would like to stress this point; just like the weather patterns, pretty much every trader in the business has different climates in which they find they ‘sweet spot’. For the options guys, it may be when nothing is moving (going sideways), or for the momentum trader(s), it may be when the stocks are going up and then following through the next day – with power (this is me). There is not one size fits all, if there were it would be like there being one weather pattern which satisfied all the people of the world – impossible – so stop looking for the holy grail of trading processes.
So, here is the climate of the stock market right now:
- Lack of momentum
- No follow through
- Lack of tight stocks (measured by the Bollinger Bands)
- Lack of stocks closing on the highs of the day
Now, for me this is a climate of the market in which I KNOW I will not make money (much of 2015 has been like this) and because of this, I am going to bring my rain jacket or stays indoors (or in other words; be protective and wait out the storm).
I hope this helps explain what I have been talking about the past couple weeks, let me know if you have any further questions.