Monday, January 30, 2012

The Daily Note - When Everyone's in the Parade...

"When everyone joins the parade, it's time to become a spectator." I had that saying for a while but it's not easy to recognize when to step out. A sure sign however is when everyone is piling on top, just as when everyone is jumping on the ship about to sail. In my mind if I take a break too early, I won't touch the sky but I won't be crushed on the bottom either. So is it time to pack bags and head for home yet?

Not so fast. There are several things to be taken into consideration before pulling out of the markets all together. One is that you have to admit that you will "never", meaning most likely never, get out at the top and consequently you will "never", meaning most likely never, get in on the bottom. As a long time trader, I doubt if it would fill up my 10 fingers and toes in addition. So you may ask what is the purpose of all the analytic s of tops and bottoms if that is not "where it's at"?

The purpose is recognizing that there are cycles in stocks not to necessarily hit them. The purpose is to see when those cycles change and to be able to adapt to the ebb and flow of the cycles like the phases of the moon. Once full or high, you know some emptying has to take place before a vessel can become full again. It's not good or bad, it's just the way it is. The purpose is to learn to choose your exits and entries wisely, rather than at random, and it's to accept the reality that being at the beginning of the parade is as good as being the one who starts one. Rivers don't start with a full gush but with a trickle of a spring and on the other end, they empty into seas or oceans. In order to make money in markets, you don't have to be the spring or the ocean.. just the river flowing in between the two.

Trouble is that many traders see things often as good when on the way up and bad when on the way down. But, in order to become good at adopting to changes, a trader also has to let go of the notion of "up and down" as well as "good or bad". Of the two, it's harder to let go of the notion of "up vs down" especially if you don't short stocks because there's no denying that charts point up in green and down in red. Also because of the hype of new highs, ytd highs and all time highs that are often celebrated whereas the opposite is very much dreaded.

It's difficult to jump in and buy when stocks are at the bottom, as it is difficult to sell when stocks are at the top and it's what keeps most traders from recognizing opportunity. Hence not selling at the top or buying at the bottom, but if you pay attention to where most traders are, you might notice that there are no spectators left, so, perhaps, it's the time to become one.

(I Stayed) Too Long At The Fair by Nancy Wilson on Grooveshark

Happy Trading, Living and Dancing

The Daily Pick - DJIA

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