Q: Bulls or Bears, who’s right?
By definition, bulls and bears are married to their positions and will justify them no matter what the market does. When they are right, they gloat. When they are wrong, they argue even harder. Neither approach results in successful trading and if your goal is to make money, you should never fall into this trap.
Successful traders are pragmatic. Three weeks ago, I liked the way the market was setting up and I bought the first Coronavirus dip. That trade turned out brilliantly, rallying nearly 200-points over a couple of weeks. But rather than gloat over my defeated rivals, I recognized good enough when I saw it, collected my worthwhile profits, and started looking for the next trade. That led to my next trade, which, unfortunately, didn’t work out so well. But since I was smart about my initial position size, entry, and stops, Monday’s dip didn’t hurt as much as it could have if I was stubbornly attached to my outlook.
What happens next is where it pays to be pragmatic. Rather than dig in my heels and argue this selloff was unjustified, I recognized the market’s emotional state and knew a great trade was going to explode in one direction or the other. Sometimes these things bounce hard and fast. Other times they keep going. As an opportunist, it made no difference to me which way the market went as long as I was making money.
Yesterday afternoon, I bought the dip when the selling stalled. I started with a small position and a tight stop. Everything was progressing nicely this morning when the market opened modestly higher. But rather than keep going, the rebound stalled and selling resumed. Rather than fight it, I flipped sides. When my stop was triggered, I got out. When the market fell under Monday’s lows, I went short. Bull or bear, it makes no difference to me as long as I’m on the right side of the trade.
And now that we find ourselves on the other end of the spectrum, down 7% from recent highs. Should shorts be gloating? Of course not! There are too many profits at risk to get caught up in this battle over who is right and wrong. Rather than brag about our success, we should be looking for opportunities to lock-in profits. Counter-trend trades bounce hard and fast, meaning anyone waiting for more will soon be left with none. Shorts should recognize their good fortune, look for opportunities to lock-in profits over the next couple of days, and start looking for the next trade. Once this thing gets oversold, it will snap back with a vengeance. Either we profit from the next bounce or we watch all of our profits disappear. You decide.
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Tags: S&P 500 Nasdaq $SPY $SPX $QQQ $IWM
Jani Ziedins (pronounced Ya-nee) is a full-time investor and financial analyst that has successfully traded stocks and options for nearly three decades. He has an undergraduate engineering degree from the Colorado School of Mines and two graduate business degrees from the University of Colorado Denver. His prior professional experience includes engineering at Fortune 500 companies, small business consulting, and managing investment real estate. He is now fortunate enough to trade full-time from home, affording him the luxury of spending extra time with his wife and two children.