This Week’s Battle Plan
Back To Normal
The world is again normal. Oversold conditions are being met with
rallies. Rallies that mean something. Rallies that are producing
outsized gains. From June through early September, these rallies were
few and far in between. Over the past few weeks, though, they have
become predictable. And substantially profitable. Look at the CVR
signals. Very solid gains over the past few weeks. And,
Wednesday’s buy signals on the close lead to one the biggest gains of
the year on Thursday and Friday. Oversold conditions rallying. That is
what is normal. That is where the money is made on a consistent basis.
And that is where I like to be. It’s been a proven market reality for
a century. And it will remain a proven market reality for many more
centuries to come. Because that is the way markets work. Yes, a few
times a year they go on one-way tears. This summer was one time. And
you live through it. But, in the larger scheme of things, the majority
of the time, overbought becomes oversold and oversold becomes
overbought. I wish I was smart enough to have thought this up myself.
But it’s been in place long before any of us were born and it will be
in place long after we’re all gone. And it will always be there for
you to take advantage of. As long as you know how to do it. And not
abandon it during the brief times that the world becomes un-normal.
Like it did this summer. It’s nice to be back to normal.
The Answers
Last
week we looked at 11 real-life “what-if” situations. Not
pie-in-the-sky, “I picked the bottom” nonsense, or worse,
“the Dow will be up 44% in 12 months from today“ BS.
These are real-life situations. Situations you be winging unless you
are prepared for them.
This week, let’s look at the answers to
the first five questions, and next week we’ll answer the final six.
For those of you who took the time and sent me your answers, I commend
you. First, for taking the time to make the effort. And second, for
the thought process involved to get to these answers. And as I
mentioned last week, you may not agree with what I say here. But these
are the ways I trade these situations. And I have now added a
full-time trader to my team. And this is the exact same way
he will be trading these situations.
OK, Let’s Go…
Question 1:Â Â What if you are long a position that
gaps greatly against you? What do you do when it opens? Do you take
the loss or do you trade through it?
Answer: This happens all the time. And the correct answer is
“you immediately exit on the opening.” No playing games, no
screwing around “hoping” it will come back. You get out.
Period. This is not only my advice, but it’s the advice of many
traders interviewed in Market
Wizards and New
Market Wizards. Read Randy McKay’s interview in New Market
Wizards. I had a chance to lunch with Randy last year in Chicago and
he’s as successful a trader today as he was when he was selected for
the book a decade ago. In his words, “When I get hurt in the
market, I get the hell out.” McKay says it, as do many other
successful traders. If the market moves against you, the rule is
“get the hell out.”
Question 2: What if you are in
an intraday position right before an intra-day economic report? What
do you do?
Answer: There is only one correct answer here. You do the same
thing time after time. Linda Raschke, my co-author in Street
Smarts and another “New Market Wizard” taught me
this. You trade through all the economic events or you trade through
none. And she’s right. Because when you pick and choose the upcoming
events that you trade through, you add another level of chaos to your
trading. Chaos you do not need, especially as you are trying to
perfect your methodology.
Take a stand today. Either trade through them, all or pass on them
all. Your call, but choose one.
Question 3: What if you are in an overnight position ahead of a
major economic report? What’s the plan?
Answer: You know the answer. It’s
the same as number 2.
Question 4: What if you are in a solid position ahead of
earnings? Do you keep the position, hedge it or exit?
Answer:Â I take a large piece off the table. This means
75% or more. I’ll play with a small amount but the majority of the
profit gets locked in. And, if I’m trading in the same direction of
the longer-term trend, surprises tend to happen in the direction of
the trend. So, therefore, if I take this trade 100 times, I’m likely
to add a few percentage points to the edge with this small piece. But
again, the majority of the profit is taken off the table by being
locked in.
Question 5: Let’s be an optimist for a second. What do you do
with a position that greatly gaps in your favor? (This may seem easy,
but I’ve seen traders actually let these moves turn into losses.)
Answer: This one really is easy. Thank you very much… next
trade! No hanging around and tying up time and opportunity. Lock the
profits in, kiss your spouse, kids or grandkids for your good fortune
and move on.
That’s it for today. These are all important, but I intentionally
placed them first because they are the easy ones. The remaining six
questions are a lot more difficult and we’ll attack them hard next
week.
Final Comment
I’m going to do a short commercial here and I’m doing it
because it’s important. Early this year we made a commitment to bring
on an E-mini trader onto the site. Someone who was successful and
someone we could all learn from. As simple as this sounds to do, it
was not. We talked with many traders and interviewed many traders. We
get from 1-3 different inquiries a week from traders (some very well
known) wanting to write for the site. So our potential talent pool is
vast. Yet, we could not find a successful E-mini trader. Many of the
traders who came to us told us they were successful. But when it came
time to show us the brokerage statements, things had a habit of
unraveling.
It turns out we had the E-mini trader in-house. Proven track record,
backed by the brokerage statements to prove he was successful. That
trader was Don Miller. Don just released his video-course and his
on-line E-mini trading simulator. His video course was of him teaching
his methodology and then trading it profitably during a live trading
session. And, even though the entire course has been out less than a
month, it has generated the most e-mails of any product we’ve
published. The accolades of these e-mails speak for themselves. People
are using Don’s techniques and making money. And the emails are proof
that his methodology is working for many traders.
There are no guarantees in trading and there is no guarantee that this
course (or any course) will make you a successful trader. But, the
response to Don’s course speaks for itself. And if you are thinking of
trading the E-minis or are already trading them and want to take your
trading to the next level, you should seriously consider taking this
course. You can click
here for the information.
Finale
The answers to the five real world examples provide you with a
blueprint for successfully dealing with daily trading situations. And
when you properly handle these situations you put yourself in the
position of becoming a more successful trader. Next week, we’ll tackle
the hard situations, and once completed, you will have a more focused
and mature plan of attack for your trading.
Have a great week trading (and work on questions 6-11 before next
week)!