How do you adjust to a trading environment? Do you roll with the changes or do you assimilate and let the market sway you? I prefer to make my own judgments about the markets -- to put my chips down where I see fit (or not) and then see what results. I have a particular style that suits my own comfort level, and I will trade accordingly. Have you established a style that suits you?
Doing this requires some effort. Clearly a good understanding of markets, trends and your own risk tolerance will shape your style. There are times when it just seems right to go with the market, and there are periods when a pause is warranted. Whatever the case, the market is the final arbiter and will be the tell.
With that in mind, did you find yourself too light on Monday's big rally or not participating at all? You're probably not alone. The volume level was lower than what we would like to see on a breakout rally. But, at this stage of the five-month rally, it's no surprise.
Why? Think about it: At what point is it OK to get on board? Now? If you do, are you worried you will be the last one in and the market will turn south? Of course you are. Institutions already have been getting in the game for months now, so why shouldn't you? We rarely see big volume at the middle part of a rally. Rather, it peaks when the crowd comes in at the end.
Returning to my own trading style, in Columnist Conversation Monday, I talked about taking profits into a big run. When I'm long into a big rally or short into a huge plunge, I'm active.
If you find yourself in the same situation, don't be complacent. In trading, the other side of buying is selling. There is absolutely nothing wrong with taking profits -- that's the name of the game. But we all know how painful it can be when a gain turns into a loss. The irony is that most don't take profits soon enough before they start to regret it. You've been there. So have I. What was once euphoria becomes a nightmare of "shoulda, coulda, woulda." We'll swear that we'll never make that mistake again.
Preaching to the crowd, right? Yep. Be different next time.
