Trades Can Still Work When Things Stink

 | Jan 09, 2012 | 1:58 PM EST
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There is some good trading out there today. The indices are bouncing around and allowing for some scalping as the dip buyers show up again. In addition, a number of individual names I've mentioned recently like Jazz Pharmaceuticals (JAZZ), InvenSense (INVN), Silicon Motion Technology (SIMO) and Spectrum Pharmaceuticals (SPPI) are doing well.

It isn't bad, but what I have consistently found to be one of the big challenges in a market environment like this is to not let my personal views about the tough economy take me out of trades that are still working well. I personally am not very optimistic about Europe, earnings season or even the health of the overall economy, so it tends to nudge me toward a more defensive approach. When I have some good gains, I want to protect them and if a trade isn't working I tend to be quick to cut them, even though they have done little wrong. 

Good trading generally requires some patience. You have to give trades some time to work and not be shaken out by the minor and ups and downs. When you are pessimistic, it is much tougher to be patient and let trades work the way they should. That has probably has impacted my trading more than anything else recently.

Staying extremely short term due to doubt and skepticism isn't all bad. You generally don't suffer severe draw downs and you don't lose money, but you don't see the big gains that result when you ride strong stocks in an uptrending market.

A bit part of what impacts my views is that I encounter so few individuals both in the market and outside of it that feel good about where things are headed economically. Nearly everyone is still worried about housing, jobs and economic growth. I know it impacts the way I approach the market when I hear so little that is positive and upbeat and I have to make sure I stay aware of that. 

There isn't necessarily any correlation between the way stocks trade and the level of pessimism or optimism about the economy in the general population. I just have to keep reminding myself that the anecdotal evidence that things stink doesn't man that trades won't work. 

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