It is a slow day out there and has me reflecting on two concepts that traders grapple with constantly - volatility and patience. Much of trading is dealing with the interaction between those two forces. The question that traders ask all the time is when does volatility reach a point when I should stop being patient and act?
I often hold small-cap stocks that I believe are good values and that will eventually perform well over time, but these thinner stocks can drift around and do nothing for very long periods of time. It is quite easy to apply standard technical analysis and reach a conclusion that the stock should be cut because the price action is so mediocre.
All traders have to set parameters that will determine when they will act. One of the biggest mistakes that a trader can make is to not act when stop levels are hit. You must draw the line someplace and disregard the fact that the movement may just be meaningless volatility.
I typically deal with the frustration of staying patient during periods of random volatility by making small buys and sales. It is a coping mechanism that keeps me in a trade that I believe will eventually work but allows me to deal with the emotions that occur when a stock is drifting around and acting poorly.
A very large amount of the time stocks don't do what you want them to do. They just move around randomly and make you think that there must be something wrong that you don't know about. That may be the case, but usually, the only thing that is wrong is that the random downside volatility is annoying the heck out of you, and you can't seem to ignore it.
If you are feeling frustrated, then make some partial buys and sales. It will help you develop the patience needed with random volatility and won't completely take you out of a favorable opportunity.