This story is part 2 of my trading lessons series.
Some trading lessons are invaluable. One of the best I learned is to be agnostic and trade without a bullish or bearish bias.
As the markets move up and down, it is easy to find yourself positioned in one camp or the other. If you sit on the sidelines, technically it means you are neutral, but in reality it often you are “bullish with a bias to wait.”
When it comes to trading, I’m not into labels. Why? A point of view doesn’t make you money. Bias changes your mindset and the way you approach trading. In this market, a biased approach causes you to lose your quickness and flexibility – and miss out on opportunities.
Furthermore, bias tends to put you on the defensive, and what is worse than being defensive in a constantly changing market? If the market is not working in your direction, you start thinking, “I am right, and the market is wrong because. …” Sound familiar?
Turn on the TV and you will hear pundits, strategists, and fund managers proclaim their allegiance to a bullish or bearish bias. Just the other day I heard at least five of these so-called experts. Two were bullish, two were bearish and one could be labeled a hybrid between the two! If I were looking for a consensus opinion, I was not any closer to one than I was at the beginning of the day. Supposedly they are armed with far more information than the public, so their pronouncements can easily become the gospel of the herd. When it comes right down to it though, their “guesses” are no better than anyone else’s.
You need to be very careful who and what you listen to when you get closer to a decision. I prefer to let the market tell me how to trade. That flexibility allows me to move quickly and decisively. We have a saying in our chat room that is a constant reminder:
“We are in the moving business, not the storage business. This market will not forgive a complacent attitude.”
Branding yourself as a bear after the SPX 500 has run up 230 points is probably as contrarian as one could be, considering the momentum is on the side of the bulls. That would clearly be a lonely position. However, markets are still in a bear phase, which is evident if you consider the long term chart of the SPX 500 (see below). Could it turn? Most definitely. The edge seems to be with the bulls at this time, but the bears may still have a chance.
Are you confused yet? I sure would be, which is why labels make trading/investing a tough proposition. Instead, make bullish/bearish decisions, look at the entire playing field and play it accordingly. If you use charts/technicals during the decision-making process for individual plays, then you’re way ahead of the game.