Playing the Rally
We play the market whichever way it goes. The strategies employed are not textbook day trading strategies, though the moving average plays and earnings plays can be one day plays at times. Given the market conditions, we have had to watch our trades much more diligently. That is why we always stress, regardless of market conditions, being defensive, setting stops, advising your broker of bailout points, etc. That is also why we look at plays from a short term perspective as well, noting resistance, support, increased selling, etc. That way you are aware of support and resistance, and if you are in a longer term play but the market and the stock start to falter, you have the information to make prudent decisions about whether you want to sell or hold. If the market is falling, you don't want to be trying to figure this out for the first time. It helps to plan ahead: if ABC stock breaks support at $90 and the market is falling, we plan to sell. It helps keep emotion out of the equation, and that usually results in a better bottom line. So, we follow stocks closely and on a daily basis; that is what we do. That may give the appearance of a day trading service, but we do not employ many strategies that you would call day trading strategies. Let's say you are worried about the markets' prospects over the next couple of months, and think we could be headed for another low. As an educated investor, you have choices. You can reduce your exposure to the market by selling any non-long term holdings and sit on some cash while you wait for the market to find its direction. Not necessarily a bad choice as noted in the past. If you think the market is going to tank and you have nice gains, that may be the right choice for you. Instead of just sitting it out, however, you can play the drops and the rallies to the upside with shorter term trades, picking your spots depending on what the market is doing. You can play a rally, make some profits, and get out if things turn south. Let's face it, if you are looking to get out before any real carnage, you would stay in until things started to look ugly, right? Why not just shorten the window a bit and pick up some easy money? Doesn't mean you have to change your overall investment strategy, just adapt to fit the market at hand. We have trades we hold for days, we have trades we turn over in a day (truer day trades, but still really not day trade strategies). It all depends upon what we are looking for out of a play: playing an uptrending stock for a few days, riding a breakout for a few days, or playing a technical bounce on a moving average play for a day or so. Regardless of the strategy, however, you cannot forget about what the market is doing. In 98% of the cases, the market is the final arbitrator of our plays. Unless you are strictly buying to hold for 5 or more years, you have to keep an eye on what the market is doing (and then you should keep an eye on things). Otherwise, you may be involuntarily forced to change your view to long term or be ready to swallow that toad (meaning closing a losing position) and move on. We do have our long term holds that we are not planning on selling (at the moment, anyay (XEL); we actively manage even these, however, selling covered calls when they have topped so we can capture returns not only when the stocks appreciates, but when they go down as well. And we will still sell these if they have changed in such a way that they no longer fit our criteria of earnings growth and market leadership. If we are riding a trend and the trend breaks down before a forecasted split announcement, we seriously look at getting out. That is just good management. With the market still in a state of extreme flux, if a stock starts waffling on you and breaks its trendline, do you want to take the chance that the market will hold up long enough for your stock to turn around? We feel it is better to have stop losses set or at least have our brokers on board with instructions on when to call us or get us out if we are not available. For online trading, we set stop losses on our stocks. It is more difficult for online options trading, as some services do not let you set stops on options trades. Still, there are steps we take whether times are steady or turbulent. When we place an order, we make sure our limit orders (NOT market orders) on buys are confirmed as filled before we log off. We keep tabs on the play several times during the day to know where the market is going that day and if the stock is following the market. If we cannot get to our terminal or log on somewhere, we make sure we have access over the telephone to a live broker who can execute trades on our account. In this market, we feel that is a necessity. Conditions change. We have to adapt. Some trades we just don't make if we are not going to be around. When times are good such as during a rally, however, we try to make the time, this is our business, and we know many, many of you want to escape and make this your business. Treat it as such, and know the plays you can and cannot get involved in based on the market conditions and your ability to monitor positions at that time. Keep your head in the game, have a plan, act according to your plan.
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