Standing Aside is a Strategy -- By: Bill Kraft
Copyright 2008, Makin' Hay, Inc., All Rights Reserved
Bill Kraft
Editor |
Over the past several months, I have received a number of emails
and heard from many traders how hard they consider the markets have been
to trade. In talking to others, I have heard many sad tales about
significant losses. In a sense, these complaints echo those I heard
when the markets turned south in 2000. I always try to ask these folks
what they are doing in the markets and the answer most often is that
they are buying stock or taking bullish positions. The problem, of
course, is that the markets have been decidedly bearish in general and
unless a trader was focusing on oil and energy, the chances for success
weren't very good. Markets are going down because most of the stocks in
that market are going down so why be surprised that we lose if we are
playing against the market?
I am convinced that most people are bullish by nature or training.
The consensus, wrong though it may be, seems to be that we need to buy
stock or directional options to make money in the markets. I once knew
a man who literally made millions in a few short years trading the
markets only to lose it all when the tech bubble burst. Of course,
there were many reasons why he went broke including failure to manage
money and failure to discipline his trading, but most importantly, he
refused to do anything but continue to make bullish plays as the market
turned more and more bearish.
It is fine to be bullish, but my suggestion is that if you are
bullish by nature and only like to make bullish plays, then stand aside
when the market turns bearish. Going to cash and just watching when a
market is bearish is a lot better than watching our assets melt away as
we try to pick the bottom.
There are many ways to make money in bearish and sideways markets.
I discuss several of those ways in my book, "Trade Your Way to Wealth" .
In Appendix D to that book, for example, I specifically set out bearish
and neutral strategies along with the bullish and describe things like
their relative risk, capital required, time likely to be in the
position, potential rewards, etc. However, just because those strategies
are available doesn't mean everyone knows them or knows how to use
them. If you are among those whose bent is bullish and who neither
knows nor cares to use bearish strategies, the best strategy is probably
to stand aside until the bull returns.
Awaiting the return of the bull requires patience and many would-be
traders are very impatient to say the least. Patience, though, is a
great asset for a trader. Rather than rushing in to catch the falling
knife as so many do, how about waiting until a bullish move is confirmed
and then invest. That certainly seems better to me than watching the
portfolio race toward zero.
As the paid subscribers are aware, I have been addressing the
bearishness for months now, and, in the bullish services have sent out
many fewer alerts than when the markets were moving up. My efforts for
the bullish services have been to try to find the occasional position
that looks like it has reversed up and get in with a reasonably tight
stop in case I am wrong on the direction. In general, though, I have
spent much more time "standing aside" than I normally would in a bullish
market. During the same period, the Option Trader service has had more
trades simply because of the ability to make bearish and neutral trades.
The markets or a stock can only go one of three ways -- up, down,
or sideways -- and there are strategies for each, but we have one other
option available when we are unconvinced about direction or just
uncomfortable with a market; we can stand aside and wait until we find
the conditions we like. It may take time and require patience, but it
is better than the alternative.
Good Trading!
Bill Kraft
Success Trading Group -- by the Success Trading Group Team
Our Success Trading service delivers quality trading ideas for the elite investor that has the financial wherewithal and market nimbleness to profit on small moves in a stock's price. Become a member and you will be provided with email and/or PDA alerts intended to provide you with the opportunity to make many, many profitable trades.
Here is a play from the Success Trading Group:
Alcoa, Inc. (AA)
Our Success Trading Group closed another winning trade this week. We traded
in and out of Alcoa (Ticker: AA) for a quick gain this week. We beleive the current market conditions will allow us to make
some more short-term trades in the upcoming weeks and we are looking forward
to actively trading the weeks ahead.
Have a great weekend and we'll trade next week.
Success Trading Group Team
Trade Quality
Stocks Over and Over Again
Over 320 winning trades and only 9 losses!
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Option Trader -- by Bill Kraft
Our Option Trading Service is for conservative traders that understand leverage principles and enjoy the challenge of options trading. We focus on powerful option trading strategies that place volatility and momentum in your favor. And we pride ourselves on always minimizing our losses!
The Option Trader service utilizes standard trading in Puts and Calls as well as strategies using Leaps, Straddles, Credit Spreads, Calendar Spreads, and Naked Puts. But no matter how sophisticated a strategy may be, we ALWAYS know our downside potential on every trade.
Here's a look at a trade Bill is currently working on:
Tiffany & Co. (TIF)
Interestingly, the jewelry store sector has been moving up
and within that sector, high end jeweler, Tiffany (TIF) has broken above
a price support. I am considering a bullish play either selling some
short duration $40 puts naked or perhaps buying some in the money LEAPS
calls.
Good Trading!
Bill Kraft
Try our Option Trader Real-Time Alert Service
and Get $50 off our Normal Website Rate!
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16.48% return in 5 days!
Trend Trader -- by Bill Kraft
Trend trading as we try to practice it is a form of momentum trading. We prefer to try to capture profit out of the middle of the trend rather than try to catch reversal at bottoms and tops.
Here's a look at a trade Bill is currently working on:
PowerShares QQQ (QQQQ)
The tech stocks have been heating up. The Q's broke through
the downtrend that began in June and have also broken above price
support. It's hard to tell whether we are seeing a bear rally or the
beginning of an upturn, but with the 12 day MA crossing the 30, QQQQ
looks like it may offer a play.
Good Trading!
Bill Kraft
Try our Trend Trader Real-Time Alert Service
and Get $50 off our Normal Website Rate!
$10 Trader -- by Bill Kraft
We really enjoy trading stocks that are $10 and under. Often they provide the chance to enjoy high percentage gains and, of course, at worst, the risk is limited to what we paid for the stock.
Here's a look at a trade Bill is currently working on:
Anthracite Capital, Inc. (AHR)
On Monday, I closed a trade I was in for only 2 business
days. Before commission, I realized a 4.7% gain. AHR now looks like it
could be in position to re-enter early next week as it continues to
climb up a trend line.
Good Trading!
Bill Kraft
Try our Under $10 Trader Real-Time Alert Service!
Dividend Investor -- by the Dividend Investor Team
Our Dividend Investor service focuses solely on the "best of the best" dividend paying stocks. We attempt to buy these stocks for their powerful dividend producing income; and we will also buy these with a purpose to make capital gains as the stock increases in value. Our Dividend Investor service is a perfect fit for an IRA account.
Here is a play from the Dividend Investor Team:
MDU Resources Group Inc. (MDU)
Our Dividend Investor members also traded in and out of Alcoa (Ticker: AA)
this week. We like MDU Resources Group, Inc. (Ticker: MDU) for a new
position at its current price for either a "trade" or an "invest" position.
Have a great weekend and we'll trade next week.
Dividend Investor Team
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and Get $50 off our Normal Website Rate
