Standing Aside is a Strategy -- By: Bill Kraft
Copyright 2008, Makin' Hay, Inc., All Rights Reserved
Bill Kraft
Editor |
Over the past several months, I have received a number of emails and heard from many traders how hard they consider the markets have been to trade. In talking to others, I have heard many sad tales about significant losses. In a sense, these complaints echo those I heard when the markets turned south in 2000. I always try to ask these folks what they are doing in the markets and the answer most often is that they are buying stock or taking bullish positions. The problem, of course, is that the markets have been decidedly bearish in general and unless a trader was focusing on oil and energy, the chances for success weren't very good. Markets are going down because most of the stocks in that market are going down so why be surprised that we lose if we are playing against the market?
I am convinced that most people are bullish by nature or training. The consensus, wrong though it may be, seems to be that we need to buy stock or directional options to make money in the markets. I once knew a man who literally made millions in a few short years trading the markets only to lose it all when the tech bubble burst. Of course, there were many reasons why he went broke including failure to manage money and failure to discipline his trading, but most importantly, he refused to do anything but continue to make bullish plays as the market turned more and more bearish.
It is fine to be bullish, but my suggestion is that if you are bullish by nature and only like to make bullish plays, then stand aside when the market turns bearish. Going to cash and just watching when a market is bearish is a lot better than watching our assets melt away as we try to pick the bottom.
There are many ways to make money in bearish and sideways markets. I discuss several of those ways in my book, "Trade Your Way to Wealth" . In Appendix D to that book, for example, I specifically set out bearish and neutral strategies along with the bullish and describe things like their relative risk, capital required, time likely to be in the position, potential rewards, etc. However, just because those strategies are available doesn't mean everyone knows them or knows how to use them. If you are among those whose bent is bullish and who neither knows nor cares to use bearish strategies, the best strategy is probably to stand aside until the bull returns.
Awaiting the return of the bull requires patience and many would-be traders are very impatient to say the least. Patience, though, is a great asset for a trader. Rather than rushing in to catch the falling knife as so many do, how about waiting until a bullish move is confirmed and then invest. That certainly seems better to me than watching the portfolio race toward zero.
As the paid subscribers are aware, I have been addressing the bearishness for months now, and, in the bullish services have sent out many fewer alerts than when the markets were moving up. My efforts for the bullish services have been to try to find the occasional position that looks like it has reversed up and get in with a reasonably tight stop in case I am wrong on the direction. In general, though, I have spent much more time "standing aside" than I normally would in a bullish market. During the same period, the Option Trader service has had more trades simply because of the ability to make bearish and neutral trades.
The markets or a stock can only go one of three ways -- up, down, or sideways -- and there are strategies for each, but we have one other option available when we are unconvinced about direction or just uncomfortable with a market; we can stand aside and wait until we find the conditions we like. It may take time and require patience, but it is better than the alternative.
Good Trading!
Bill Kraft
Success Trading Group -- by the Success Trading Group Team
Our Success Trading service delivers quality trading ideas for the elite investor that has the financial wherewithal and market nimbleness to profit on small moves in a stock's price. Become a member and you will be provided with email and/or PDA alerts intended to provide you with the opportunity to make many, many profitable trades.
Here is a play from the Success Trading Group:
Alcoa, Inc. (AA)
Our Success Trading Group closed another winning trade this week. We traded in and out of Alcoa (Ticker: AA) for a quick gain this week. We beleive the current market conditions will allow us to make some more short-term trades in the upcoming weeks and we are looking forward to actively trading the weeks ahead.
Have a great weekend and we'll trade next week.
Success Trading Group Team
Trade Quality Stocks Over and Over Again
Over 300 winning trades and only 9 losses!
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Option Trader -- by Bill Kraft
Our Option Trading Service is for conservative traders that understand leverage principles and enjoy the challenge of options trading. We focus on powerful option trading strategies that place volatility and momentum in your favor. And we pride ourselves on always minimizing our losses! The Option Trader service utilizes standard trading in Puts and Calls as well as strategies using Leaps, Straddles, Credit Spreads, Calendar Spreads, and Naked Puts. But no matter how sophisticated a strategy may be, we ALWAYS know our downside potential on every trade.
Here's a look at a trade Bill is currently working on:
Tiffany & Co. (TIF)
Interestingly, the jewelry store sector has been moving up and within that sector, high end jeweler, Tiffany (TIF) has broken above a price support. I am considering a bullish play either selling some short duration $40 puts naked or perhaps buying some in the money LEAPS calls.
Good Trading!
Bill Kraft
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Trend Trader -- by Bill Kraft
Trend trading as we try to practice it is a form of momentum trading. We prefer to try to capture profit out of the middle of the trend rather than try to catch reversal at bottoms and tops. Here's a look at a trade Bill is currently working on:
PowerShares QQQ (QQQQ)
The tech stocks have been heating up. The Q's broke through the downtrend that began in June and have also broken above price support. It's hard to tell whether we are seeing a bear rally or the beginning of an upturn, but with the 12 day MA crossing the 30, QQQQ looks like it may offer a play.
Good Trading!
Bill Kraft
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$10 Trader -- by Bill Kraft
We really enjoy trading stocks that are $10 and under. Often they provide the chance to enjoy high percentage gains and, of course, at worst, the risk is limited to what we paid for the stock. Here's a look at a trade Bill is currently working on:
Anthracite Capital, Inc. (AHR)
On Monday, I closed a trade I was in for only 2 business days. Before commission, I realized a 4.7% gain. AHR now looks like it could be in position to re-enter early next week as it continues to climb up a trend line.
Good Trading!
Bill Kraft
Try our Under $10 Trader Real-Time Alert Service!
Dividend Investor -- by the Dividend Investor Team
Our Dividend Investor service focuses solely on the "best of the best" dividend paying stocks. We attempt to buy these stocks for their powerful dividend producing income; and we will also buy these with a purpose to make capital gains as the stock increases in value. Our Dividend Investor service is a perfect fit for an IRA account. Here is a play from the Dividend Investor Team:
MDU Resources Group Inc. (MDU)
Our Dividend Investor members also traded in and out of Alcoa (Ticker: AA) this week. We like MDU Resources Group, Inc. (Ticker: MDU) for a new position at its current price for either a "trade" or an "invest" position.
Have a great weekend and we'll trade next week.
Dividend Investor Team
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