If This Attitude Descibes You, Expand Your Horizons
The market traded lower again today, with the NASDAQ and
Russell 2000 hitting new lows for the year, while the S&P 500 and Dow Jones
barely managed to avoid falling below last week’s lows. The most interesting
markets today, though, were not in the U.S. Many foreign markets really took it
on the chin. Some examples would include India — down 11.1%, Argentina — down
6.7%, Indonesia — down 7.5%, Japan — down 3.2%, Korea — down 5.1%, and Thailand
— down 4.6%. Those are not pretty numbers. Anyone looking to foreign markets
for confirmation should have it by now — it’s ugly out there. I would doubt
even a high-volume follow through day for the S&P or Dow would have much of a
positive impact at this point. Markets need leadership to move strongly higher,
and I’m seeing very few candidates out there. Therefore, the short side still
appears to be the better bet.
One phrase I’ve been hearing from growth traders recently
is, “There’s not much to do until the market improves.â€Â For people who consider
trading a hobby and who only trade one particular style, and only trade long,
this may be true. For anyone who is a full-time or aspiring full-time trader,
this is not a healthy attitude. Full-time traders must learn how to make money
in different market environments. Just because your primary investing strategy
is out of favor at the current time doesn’t mean you can’t attempt to profit
from secondary strategies.
Growing up, my father owned a wood-stove store. As you
would probably guess, most people interested in buying wood stoves to heat their
homes made their purchases in the fall or early winter. One weekend in October
might produce more sales than the entire month of June. There was no way that
the store was going to produce steady profits 12 months a year. So rather than
sit around during the spring and summer he also decided to sell greenhouses.Â
While the woodstoves were his primary business, the greenhouse sales allowed him
to make some money during the off-season.
Trading is very similar. Although traders cannot as easily
predict when their busy season will be, they should be capable of scratching out
at least small gains in environments that are unfavorable to their primary
strategies. This will help improve overall profitability and keep their head in
the game so that when the environment becomes more favorable they can better
recognize and react to this.
Just as it would have been foolish for my father to have an
empty warehouse at the end of September, it would be just as foolish for growth
traders to have an empty watchlist when the market eventually begins to rally.Â
(While I don’t anticipate this will happen for some time, the fact is it could
happen at soon as tomorrow, and if it does, you should be prepared to take
advantage of it.)Â Â
If you’re primarily an intermediate-term trader and you
don’t have any short positions by now, it is probably because you don’t have any
short selling methodologies you are comfortable with. Take the time to learn
some. Two good places to start are
Mark Boucher’s and Stan Weinstein’s books.Â
Alternatively, you could explore some short-term methodologies for times like
these.
Best of luck with your trading,
Rob