Connors’ Weekly Battle Plan
This weekend I
get the honor of sitting 8 hours each day in 100-degree heat,
accessing the skills of over
250 youngsters who are going through tryouts for the upcoming Winter Softball
season. After watching some of the Little League World Series games this past
week and seeing the skill-sets of some of these kids, I hope to be awed and
whoa-ed, while I’ll be doing my best not to die from heatstroke. And, while I’m
out there, I’ll probably be doing some thinking about the markets. And one of
the things I’ll think about is our trading for the year and think about what we
did right and what we could do better. And, even though we’ve made a few
dollars, I know I will likely start kicking myself because the move off of the
March lows has been powerful and plenty of long opportunities would have been
available to be capitalized upon, had we identified the bull market earlier.
I suspect I’m not the only person who feels this way. And, it could be
worse…we could be short this move. But, bull markets, especially early bull
markets, have certain characteristics that we can all learn from, and we’ll use
this week to look at some of these characteristics:
What Bull Markets Do
- Trap
Doors,” and it is a very powerful strategy to utilize, especially at
market extremes.Â
So How Do You
Use This Information To Your Advantage?
You usually don’t know you’re in a bull market until it’s later in its phase.
It’s very, very difficult to tag a market as being in its bull phase, early on.
There are too many logical reasons against it. Only after the fact do these
logical reasons seem to disappear (again, think of things like valuations). And,
if you take a poll today of professional money managers and professional
traders, many will tell you we are simply in a rally stage of a long-term
secular bear market. But, assuming you believe we are in a bull market, there
are ways to take advantage of it.
First, you focus less on the short side and you certainly focus less on picking
tops. You’ll get steamrolled if you’re playing that game.
Second, you look for good, solid reasons to be long. Valuations (undervalued)
pullbacks in strong trends, short-term oversold indicators, and more, are all
ways to get long stocks at reasonable prices.
Third, you still need to remain vigilant with your stops. I don’t care how
positive you are that a stock is going to go higher. Proceed with the premise
that you may be wrong (better yet, will be wrong). This leads to putting
in stops. There are many very good ways to do this. We use pivot points as our
primary stops for stocks and we combine this with controlled position size in
order to minimize losses when we are wrong. This is just one way to do it. There
are many others, but your main job is to protect your assets. Making money on
those assets comes next.
Finally, stop listening to all the expert opinions out there. Formulate your own
opinion. If you’re wrong, your money management strategies should protect you.
If you’re right, and are using proper investment/trading techniques, the gains
will likely take care of themselves. Listening to the daily chatter of “we’re
overbought and insiders are selling” versus the chatter of “we’re heading higher
because the semis are leading,” are good pieces of analysis but it will drive
you crazy. Plus, only one side will eventually be right. Come to your own
decisions, using (if you can) as much statistical evidence as possible to guide
you. And, if we are really in the early stages of a bull market, pay special
attention to strong stocks breaking out or pulling back from highs. This has
historically been the best way to trade bull markets, and my guess is it will be
one of the better ways to trade all future bull markets.
Have a great week trading (and if you see a guy walking around downtown LA who
looks like he has radiation poisoning because he spent too much time in the sun
this weekend, you know it’s probably me)!