Learn to love the axe
Knowing when not to trade is as important as knowing when to trade.
You have heard me say that many a time, I know, but it is still often overlooked.
Today we will have the rate decision, and the market is awaiting that although, to an extent, it is already factored in.
So while we await the news, in place of taking trades today, look at what trades you may look to manage and how, if the reaction to the rate decision is unexpected.
In 2022, almost daily, we were taking the axe to zombie positions.
A horrible feeling but a year later a good decision.
Right now we are focussed on swing trades with the intention that some of these can transition to long-term growth trades, assuming good fundamentals and technicals.
You may remember the first trade we took after the COVID crash.
It was MSFT and, as was mentioned on one of the webinars and TRC then, the stock had good fundamentals and we were awaiting a technical set-up.
The set-up was the intraday tag of the 50MA on April 7 2020.
From there until the end of the year, price rallied about 35%.
Most of that time the media were focused on the market crashing even lower.
None of us know what price will do today or next week, or next month but we do know in a few years time, be it three years, five years or ten years, the probability of the stock market moving upwards is quite high, irrespective of a recession, war or pandemic.
A bear market does not happen very often - and waiting for the media to realise the bear market is over is a very poor method of entry.
After a cold winter, most of us can't wait for spring to arrive.
We don't need confirmation from the media that we have a nice warm day, we can tell it is nice and warm.
If we go out for the day, we may need to take precautions and carry a jacket or umbrella, just in case.
The same applies to the market.
We can see when the price is moving up.
We need to apply caution, so we use appropriate risk and management.
Entering blindly with no intention of using the axe - if price reverts - will damage our portfolio and our mindset.
However, watching the market move up and not entering when low-risk opportunities present themselves will also have consequences.
Often FOMO will set in and traders will chase price action - only to enter with high risk, low probability and large losses during drawdowns after price becomes over-extended.
In the last 74 trading days the S&P 500 has moved up 17%.
Our core positions have turned around and swing trades have been providing small but positive returns.
If you are still watching from the sidelines, ask yourself how much longer you are going to watch - and what exactly you want to see before you do decide to enter.
As I said, today is FOMC day, and whatever happens before that, we are not looking to enter the market, but we are organising our list of stocks to manage if the market falls heavily.
As mentioned in the weekly webinars near the start of Jan 2023, we were looking for a pop in the market.
We have had a pop.
Now we are watching for any drop in the market.
Have your portfolio planned out and - if you enter any trades after this week - do not hesitate to axe if the stock fails to perform.
Note:
Bear markets are not a daily occurrence.
If you miss the transition from bear to bull, you have to wait about five years for another bear market to get in at the early stages of a bull market.
So the opportunity is now but...
Test the trades - then add if the trade trends
Only enter on low-risk set-ups
Don't chase price action
Enter with a swing mentality and then transition to growth if the stock behaves well and has good fundamentals.
Remember, the market moves before the economy.
If you miss it, you might well have missed it!
Let's go trade!
