This Week’s Battle Plan
Today’s Focus
I have family commitments on Sunday, so I’m writing this
piece on Friday afternoon. It’s a bit shorter than usual but I want to very much
focus on what just happened this week and how it pertains to your trading.
This Week
You fell into one of four different camps after this
week’s substantial rally followed by Friday’s intraday reversal. These camps are:
- You made a lot of money (until 10:30 a.m. Friday
morning) because you were long, stayed
long and even possibly pressed your long positions size to the limit.Â
- You were mostly long and kept locking in profits along
the way this week (this was my camp). But, because you were taking pieces off
the table as the market became more extended, you made less money than the
first camp (until the reversal took place).Â
- You were unprofitable because you were
all over the place.Â
- You were short the market or were fading any signs of
weakness and got clipped and lost some money/a lot of money until the reversal
hit Friday.
Scenario A:
Until about 10:30 am on Friday, life was good to you. But, if
you were buying heavily on the opening, or your stops were not tight, a chunk of
your profits were lost on the reversal. Overall though, this should have been a
profitable week for you. The question now becomes: Do you continue to press here
and be fully invested (and likely very profitable) should the rally resume, or
do you walk away and run the risk of missing this next move?
Scenario B: You should
have been profitable for the week. You may have been kicking yourself along the
way as you watched stocks run further after you took profits, but there is
little chance that you gave back the same percentage of gains as those who trade
in Style A, mentioned above.
Scenario C: You were
frustrated this week as you kept reacting to the market as opposed to trading it
proactively. Maybe you missed the run up, maybe you went short on the down days
only to watch it reverse, or maybe you jumped in on the long side Friday
morning.
Scenario D: You kept
shorting this thing because you like to attempt to pick tops and bottoms. You
probably got your teeth rattled but you may have made money for the week when
you caught (finally) a healthy reversal on the last few hours of the trading
week.
What Does All This Mean?
It means, this week was as realistic and as all
-encompassing as any week you’ll see in the marketplace. It’s very likely that
many disciplined people made money this week, using different styles. The
momentum guys were rewarded early and often and gave some back at the end of the
week, but they were still net ahead if they were not over-invested and/or they
had trailing stops in place. The more conservative momentum traders, those who
don’t mind leaving some money on the table in order to avoid days like Friday,
likely also had a very good week. The reversal traders may have also made money
but needed to deal with the drawdowns in order to catch Friday. But, the guys
who DON’T HAVE A SET PLAN, the guys who jump around from one thing to the next
and react instead of being proactive, probably lost money and maybe lost big
money. They almost always do, over time.
Markets trend, markets move sideways and markets reverse.
You must have a plan that lets you maximize when it does one of these things
while it minimizes the drawdowns when the other two occur.
YOU NEVER KNOW WHICH OF THESE SCENARIOS WE ARE IN UNTIL AFTER IT’S OCCURRED!
That’s a fact. But, you can have a plan in place in order to take advantage of
weeks like this — weeks that have the potential to make you a good deal of
money but also the potential to hurt you if you don’t have that plan.
Structure, structure and structure gets you there! And if you need help finding
this structure please email me
and I’ll do my best to help.
Have a great week trading (and next week we’ll look at
the research project from last week. If you emailed me with a question on
it, you’ll get a reply from me by Monday night)!
Larry
Connors and Brice
Wightman