October 16, 2006 at 9:30 am | | Comments 4

Cash IS a Position!

In a day and age of nearly instant executions and dirt-cheap commissions, it’s extremely easy to overtrade. Throw into the mix the number of days when we get narrow trading ranges and pending news (like major afternoon earnings announcements or Fed days), and boredom becomes a huge factor to contend with as a trader.

With so many great trading tools at our disposal, we can easily start feeling an obligation to put them to use and just be active. I know there have been plenty of times when I have not seen the high-quality setups I prefer to trade, yet I stayed at the PC because there wasn’t anywhere else I needed to be. Next thing I knew, I was pushing buttons left and right to create some activity and interest for myself. The result? It’s not hard to guess – the majority of those times I paid for it and wondered why I felt such an obligation to “be positioned.”

After some thought, I finally realized that CASH IS A POSITION! Moving to cash when I didn’t see the optimal trading conditions for my style was in fact taking a position. My position was safety when my certainty level was below what it needed to be in order to trade.

Let me encourage you to do the same thing! You don’t always have to be trading something (even if you’re a scalper). The current market environment may be a perfect example for you. If you’re feeling like the market is too extended in the near term to place new buys, yet you are not willing to start short selling, then remember that cash is an alternative and just step aside. You can still keep an eye on the market, but it may also be a perfect time to tend to other matters so that once your trading activity picks up you are fully focused on the task at hand.

There are times when either the market is giving signals of uncertainty or you may just feel out of sync with things, and during those times it’s best to just move to cash and wait for some clarity. Be bold enough to take a position in cash when your signals are telling you that the sidelines are the place to go!

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Jeff White
President, The Stock Bandit, Inc.

[tags]Stock Trading, Day Trading, Swing Trading, Position Trading, Stock Market[/tags]