August 20, 2007 at 8:48 am | | Comments 5

Trading vs. Investing: Two Kinds of Good Markets

“Regular” people I know (non-traders) are “invested.” They have 401k’s with company stock and mutual funds. They have managed money trying to outpace the market. They look at performance stats of money managers and funds before depositing their hard-earned dollars in such places.

And then they wait.
They hope.
They need.

They wait for the market to climb. They hope for an advance. They need a bull market. They want the little ticker at the bottom of their news screen to show a green arrow beside the DJIA or the S&P 500, or else they’re losing money.

They’re fully-dependent upon the market to produce their gains for them. For them to profit, the market must rally over time, and historically it has. As goes the market, so go their returns. But they have jobs and other demands on their time during the day, so they’re not interested in nailing a move right after an economic report or energy inventory number is released. They want their funds to grow over the next 10, 20, or 30 years from now so that they can quit their jobs and retire comfortably. I can understand that, so I don’t fault them.

A Trader’s Needs Are Different

Me? I’m not one of the “regular” people. I’m a trader and therefore entirely different.

I wait for opportunities. I hope for good chart setups. I need volatility.

Whether the market is up, down, or flat for the year doesn’t begin to tell the story of my returns. I’ve had fantastic days when “the market” was down after nailing some shorts. I’ve had huge days when the market was flat. And sadly perhaps, I’ve had pathetic days when the market screamed higher without so much as a minor dip! 🙂 That’s how trading works, and I wouldn’t, uh…. trade it for anything. I absolutely love it, and I can’t wait to see which opportunities will surface after the next opening bell.

But I must admit that “the market” does impact my trading. The most notable influence on my trading is whether a trend is underway or not. The presence or lack of a trend will impact my directional bias, my timeframe, and even my activity levels. Volatility is another piece of the puzzle, as too much of it will curb my aggression and not enough of it may remove me from my screen altogether. Volume is important (as I recently noted), because I need quality executions and enough liquidity to get into or out of trades without added slippage.

“Good” vs. “Bad” Markets

To me, when “the market” is good I see lots of high-quality chart patterns. In a “good market” I know I can risk a little to make a lot more(by swing trading), even though I’ll be wrong sometimes. A “good market” isn’t necessarily an up market, but it is on the move and giving me waves of activity which I can attempt to time and profit from. I only need a piece of a move to make my day’s pay.

A “bad market” to me is of course not necessarily a down market, but one which is offering few opportunities or poor risk/reward trades. “Bad markets” mean less activity and a greater focus on preserving my precious trading capital while I wait for better conditions to arrive. Needless to say, trading heavily in a “bad market” means spinning my wheels or losing ground, and those are things I specifically want to avoid in my trading plan!

If you’re a trader, I’m sure you can relate to this. Listening to talking heads on TV blab endlessly about where the market will be by the end of the year is a waste of your time. Always be measuring whether the conditions are ripe for your style of trading, and only take action when they are. Don’t get seduced by big point moves in the averages or fear that you need to just buy something in order to participate in a run. Stick to your method and know that your discipline will get you through bull markets, bear markets, and everything in between.

Jeff White
President, The Stock Bandit, Inc.
Swing Trading & Day Trading Service

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

RSSComments: 4  |  Post a Comment  |  Trackback URL

  1. I’m guilty of the ‘just by something’ problem sometimes. It hard to sit tight when the market is moving lower (or higher) and not jump in (at the wrong price).

  2. It sure is easy to do, especially when things move like thay have been!

    But it’s funny how often those planned trades end up paying off, and the impulsive types of trades often don’t.


  3. Jeff,

    I also do agree with your thoughts on “Good” vs. “Bad” Markets. I am also a traders and i too like to trade in volatile market. The trading opportunities really likes in volatile market where there is big swings and more of activities happening, rather than in a flat market where there is hardly anything to make a successful trade.

  4. That’s certainly true, as the flat markets are much better for a day at the golf course than active trading! After all, why press trades when the opportunities aren’t present?

    Thanks STB,


Trackbacks: 1  |  Trackback URL

  1. From Freedom in Cash | on Nov 25, 2008

Sorry, comments for this entry are closed at this time.