Trading in individual stocks continues to be quite good as the indices continue to trend slowly higher. Because of the Covid-19 news flow and the end of the quarter this week, there appears to be more focus on timing the indices than normal. Trying to catch a fast move in the indices is a very understandable desire of many traders but I often wonder how productive that effort might be.
This past weekend I discussed the many different ways to trade and the fact that no one style is inherently superior. So my views about trading the indices are subjective and may not apply to someone else but I've often found that focusing on the indices too much is counter-productive to good trading.
Timing indices is extremely difficult and the vast majority of traders error on the side of being too early when they try to call market turns. I've written quite often about how it is better to be reactive rather than anticipatory when it comes to timing but it is also just plain exhausting to be on the wrong side of a market that is moving briskly in the other direction.
Not only is the timing difficult but it can be quite distracting when you are too focused on index timing. I find that I often miss out on good trades when I'm obsessing over whether the indices are going to move in a certain direction. In most cases, I'd be better off if I simply traded an individual stock rather than fool with the indices.
I suspect many traders focus on indices because they believe that is what sophisticated 'professional' traders do. They formulate these big picture arguments and then wait for the rest of the world to bow to their great wisdom. These timers are never wrong, they are just early.
Calling market turns is often viewed as the highest attainment of a trader. Be able to navigate the twists and turns based on analytical insight is the personification of great trading. The reality is that trading a bunch of crap stocks may actually be easier and far more lucrative.
I do find it helpful to put on some index trades from time to time but I have to remind myself that they should just be an adjunct to the trading of individual stocks. It is far too easy to focus so much on timing that you are missing the real opportunities out there.