It Goes Without Saying That We' Ve Been Trading A Pretty Tough Market

Finance.

Staying on top of bettertrades - it goes without saying that we' ve been trading a pretty tough market. Many of those trading today have been trading fewer than 5 years and have no prior experience with this kind of market.

I believe as well that is really a matter of perspective. - additionally, their relative lack of experience has them running for the" tums" at almost every negative comment out of new york or washington! You have to stay' on top' of the market at all times if you expect to be a successful trader. Well, it is precisely, justified or not this kind of market which drives home an important tenet of trading. I have developed a pretty simple method for doing that. These various strategies derive their reputations from the' characteristic movement' responsible for profit when the strategy is traded successfully. Let' s take it as a given that there are bearish strategies and bullish strategies.

For example, buying stock is bullish while selling calls is bearish. - if you sell calls against that stock, you benefit most when the stock declines in value. If you buy stock and it goes up, you' re profitable. Let' s list a few more for clarity. Buying calls, call debit and, selling puts put credit spreads. Bullish strategies include.

Bearish strategies include. - the' bullish' or' bearish' character of each of these comes from the fact that profit is derived from stock price movement. Buying puts, etc, selling calls. Bullish strategies work best when the underlying stock moves up. Admittedly an oversimplification, we' ll accept this as true for the purpose of explanation. Conversely, bearish strategies are most profitable when the underlying stock decreases in value.

As you know, I meet with other traders of varying experience levels everyday in my online trading lab. - lately, these have been pretty bearish in nature. "lately" meaning the past 2 or 3 years! We work our way through each trading day using strategies which are working well for us. While I have profited from stock going up, my PREDOMINANT strategies have been bearish. I' ve recently noticed that our strategies have been becoming more difficult to trade through. Shorting stock being among my favorites!

I learned many years ago that one of the most reliable signs for me that we have a coming change in overall market direction is when my current trades begin to generate less and less profit! - i also learned that a great way to give yourself a' heads up' on this is to always have some paper trades going. That has to assume a consistently high level of strategy execution and adherence to trading rules, of course. That is, if you are REALLY trading to the down side, have some paper trades to the upside going as well. If you see your REAL trades beginning to turn against you while your paper trades are becoming more and more profitable, the be ready for a coming change in the broader markets! Pay attention to the trade results for BOTH groups.

Arguably a crude measure of market sentiment, these paper trades can provide you with an amazingly accurate forecast of conditions to come. - first, be sure that your paper trades are not being affected by temporary, passing influences having little to do with the broader market. There are some things to keep in mind however. For example, avoid paper trading cyclical stocks which are entering( or exiting) those times when their price might be naturally or normally affected. Likewise, trading airline stocks after an oil price hike would not be a fundamentally sound basis for predicting a falling market. Trading a retail stock between Thanksgiving and Christmas would probably NOT give you an accurate indication of an improving market. Second, keep your paper trades SIMPLE!

The best indicator trade( as I call them) is the most simple strategy I can use. - remember, you are here for the money, not the trade. If I' m trading in a bearish market and want to be on the alert for improving conditions, I' ll simply BUY stock( on paper, of course) . When trading a bull market, I' ll short stock on paper to stay ahead of the bears. The fewer components to the strategy, the easier it is to interpret the results! Finally, be sure to use indicator stock having a broad base of support.

WalMart is not good to use during periods of anticipated peak buying. - the dow industrials work well for me, keeping in mind that even in the djia, there are stocks to avoid. Additionally, companies facing' unusual' conditions. It' s really a matter of common sense! Lawsuits, acquisitions( buying or selling) , etc would be good to avoid. Try this and see how it works for you.

Happy Hunting! ! - in any event be sure to do something to stay on top of the market! Bob Eldridge