Which Of These Categories Do You Fall Into?

  • November 19, 2003
  • Rob Hanna

The
market managed to bounce a little bit today,
finally managing to post a gain after four days of selling. Volume looks like
it will finish pretty close to where it has been the last few days. It appears
as though multiple CVR signals are triggering at the close (CVR I, CVR II, and
CVR VI). This suggests that the market could see a move up in the next few days.
Assuming this expected bounce does materialize, I will be watching volume closely.
If the market can rally on high volume, that will be a positive sign. A low-volume
bounce and it may be time to tighten some stops on long positions and keep an
eye out for potential shorts.

For the last several days, Bob Pisani on CNBC has been discussing
the following theory:

The reason market volume has been low lately is that many institutional
traders are happy with their year, have lightened up on their trading, and are
simply protecting profits.

He may be right. Institutional traders may be doing this, but
in my opinion this whole line of thinking is completely convoluted. There are
six weeks left in the year. Regardless of whether you are having a good or bad
year, why stray from your trading plan now?

It’s natural to want to finish the year off well. No matter
where you stand with regards to your goals this is true. Right now traders typically
fall into three categories:

1) Those who have overshot their goals significantly, and have
that little voice in their head saying “Don’t blow it now.”

2) Those who are very near their goals, perhaps a little above
or a little below, and have the little voice saying, “Just hang in there.
If you can just make a little bit more, then that will be good.”

3) Those who have underperformed their expectations and have
the little voice saying, “Time to get more aggressive. You really need
to have a great six weeks in order for this year to be successful. Let’s
get it going.”

Don’t listen to any of them. A good trading plan January-November
is a good trading plan in December. The market doesn’t know what kind
of year you are having and it wouldn’t care if it did know.

It would be great to be able to say you made X amount or X%
this year. Just as your focus has been on your trading for the last 46 weeks
of the year, it should remain there for the next six weeks as well. If you are
more worried about managing to a number than managing your positions, you will
be doing yourself and your trades a disservice and your account will pay for
it in the long run.

Trading plans sometimes need adjusting. A change in market environment
is a valid reason. A desire to achieve a certain number by a certain date is
not. Stick to your plan and you won’t be second guessing yourself after
the holidays are gone. Hopefully everyone will finish the year well and achieve
their goals. If not, make sure it isn’t because you started trading differently
as January approached..

Good Trading,

Rob Hanna

robhanna@rcn.com