Trade when it matters most
Through the years, I
have often wondered why some days the methods play out with very strong
follow-through and why some days the methods just result in a bunch
of stops. I eventually realized that the methods are not the issue rather it is
the market itself. This may be a bit hard to grasp, but the reality is that the
market has fertile trading environments and infertile trading environments. I
like to call them peaks and valleys, respectively.
The fertile environments usually come from a
daily trending market which allows for nice intraday volume and follow-through.
Infertile environments usually have very choppy daily 5/15 period moving
averages which results in lots of intraday head fakes, fades and wiggles. In
peak markets, even sloppy entries on blurry set ups can result in profits
whereas with valley markets, even prime entries and setups can still result in
stop losses. This is just the nature of the beast. Traders must be able to put
this into perspective. It is a myth to assume that a trader should make profits
every day. The reality is that traders will hit the bulk of their profits in
distinct peak market conditions throughout the year and likely have drawdowns in
the valley periods.
A great analogy to this is like playing Texas
Hold’em Poker. When you get great cards in poker, the game is incredibly easy
and profitable. When you get pocket aces and then flop a set or full house, it’s
very tough to lose. However, the cards eventually will turn bad as they always
do. The difference between the pros and the dead money is that the pros can push
during the peak cards and then pullback and tread water during the valley cards.
Peaks and valleys is the name of the game. Anyone can make money in the peak
periods. However, it’s the valley periods that tend to destroy most players.
This applies directly to your trading. The key to
surviving valley market periods is to decrease the number of trades, filter
tight and trim the share size. At Undergroundtrader we have four known peak
periods and they always hover around earnings season. The next peak period comes
January 2006, as 4th quarter earnings season gets underway.
So continue to tread lightly during until the end
of the year as this valley period will eventually work itself out. The fertile
peak market environment is just over the horizon. Good trading gang!
Feel free to send any questions or comments to
jay@undergroundtrader.com
Jea Yu has been involved with the
equities markets for over 10-years. He specializes with intraday trading in the
U.S. equities and futures markets. To receive a free 7 day trial to Jea Yu’s
Underground Trading Pit,
click here or call 888.484.8220, ext. 1.