December 16, 2008 at 7:25 am | | Comments 1

Don’t Let Opinions Interfere

It’s been one hairy market out there during the past few months.  Over that period, we’ve seen nail-biting selloffs and toe-curling rallies of tremendous proportions.  Volatility has expanded to a degree not seen in many decades as the market has grappled with big issues like failing banks, several episodes of government intervention (bailouts), a presidential election, and the prospects of a bleak business outlook for the foreseeable future.

More recently, we’ve seen the major averages settle into trading ranges spanning more than 5 weeks with support preventing downside momentum and overhead resistance keeping rallies limited.  Such conditions make for a reversal-prone market, catering nicely to those who are day trading, but requiring those who generally swing trade to remain sidelined and wait for some smoother moves to come along.

Avoid Looking For What Isn’t There

When so many cross-currents are at play, it’s easy to start including some hunches in your decision-making process.  It’s an effort made to gain an edge.  We all do it from time to time, but we’ve got to be very careful anytime we start including more than what we can see on a chart.

This is a bit of a touchy subject, because I do think that experienced traders should develop some gut feel over the years.  It can offer some needed flexibility. That I don’t have a problem with.

The trouble comes along when those opinions (or gut feel) begin to interfere with what the charts are telling you. Having a hunch is one thing, but becoming married to that hunch is a far more dangerous topic.

What we don’t want is to let a thesis we’re operating on interfere with what a stock is actually doing. Opinions can be helpful to stick with a trade, but so long as they don’t interfere with what the chart is saying they can be a help and not a hindrance.

The idea is to stick with what the chart is telling you – make decisions based on the price action when it comes to your entries and exits, even if your overall directional bias is founded on an opinion. Keep those opinions in mind, but only act on the price action!

The Wait Will Be Worth It

Here’s the thing: right now we’re range-bound.  That means we’re going nowhere fast, at least until key support or resistance gets broken – preferably, for more than a day.  So as long as we’re stuck in this trading range, it’s a time to let others formulate opinions.  If you’re trading right now, don’t wear out your welcome.  Stop out quick and book profits more aggressively when you have them.

Once the range gets broken, we should then have plenty of technical reasons to be opinionated.  Until then, they’ll simply interfere.

Trade well this week!

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

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  1. Couldn’t of said it better myself. You’re totally right when it comes to having an opinion, wait till after your trades are DONE!!! Till then just focus on the charts!

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