Why We Don’t Care What’s Going On In The World (Trader Q&A)
Sep 09, 2013
Well, okay, perhaps the title could be construed as a bit melodramatic.
After all, since empathy is a normal human emotion, we all care to varying degrees.
What we really mean to say is that we don’t let geopolitical news events lead our decision making process with regards to trading stocks and ETFs.¬
Put simply, we don’t “trade the news.”
Since we always encourage our subscribing members to ask questions whenever they are unclear about any part of our trading strategy, we regularly field a steady flow of questions every day.
Whenever we come across a question that we think our readers may really benefit from, we share those questions (and our answers) here on our blog.
The question below was e-mailed to us over the weekend, perhaps in relation to our September 6 blog posting of Top 3 Reasons Why The NASDAQ Will Soon Breakout To A New High.
In this question, subscriber Roger expresses concern over how to continue trading the long side of the market, despite the fear of war with Syria and such. Our reply to him follows. Enjoy…
I understand that you don’t let politics or “outside” events influence your trading activity – you trade what you see.
That being said, how do you deal with the possibility of something as looming as the possibility that the U.S. may get involved in yet another mid-east war?
I’m somewhat concerned that we have as many positions (in The Wagner Daily newsletter)¬†as we do at this juncture. Maybe oil and silver will prove defensive, but maybe not so much our other holdings.
If you would, please tell me how an experienced trader deals with things like this.
I know we probably just need to stay the course and rely on our stops, but (as I’m sure you know) it’s not always easy to stay the course when we feel the market is imploding.
Perhaps other traders are feeling anxious as well.
Rather than responding to me directly, perhaps you could address this in the Monday morning webinar…
Thank you so much Rick, I really appreciate this service!
First of all, the way we trade the market is the same no matter what is going on in the world. We have a pretty simple rule that guides all of our stock trading, which is to follow the “big money” institutional players.
In 2009, everyone thought the market was risky and not a strong buy because the risk of a financial collapse still seemed so high.
Meanwhile, major institutions (banks, mutual funds, hedge funds, etc.) were putting a ton of money to work in the market (and you know how sharply the market has been rallying since).
Currently, the market is in decent shape because the NASDAQ has held up so well. However, if the NASDAQ suddenly breaks down below the 50ma, we would begin to get defensive and possibly even start short selling.
Overall, our goal is to stick with positions and keep trading until the “big boys” want out.
This can be determined by observing the performance of leading individual stocks, as well as the price to volume relationship of the broad market (distribution days and such).
Now, if you are uncomfortable, reduce size of positions that are not working well or are showing the smallest gains. Take it down to a level that makes you comfortable.
As far as actual positions go, I would¬†NOT¬†recommend taking everything we list after your (trading account) is up to 50% invested,¬ unless¬†you have positions that are deep in the money.
For example, if your are already long the 25% position in $TAN (from $24.20 entry), the 55% position in $USO (from $36.05 entry), and now the $YELP 33% entry (from $50.64), then you do not have to count this as exposure (because each of these trades are already deep “in the money”).
Therefore, you could add 50% exposure on top of these trades because their stops, at this point, will be just about breakeven.
If you review the¬†5 modes of our market timing system, we list just how much exposure one should have at any given time. I might have to go into more detail in this section to help traders out a bit more.
If you just joined our swing trading letter, portfolio long exposure can be anywhere from 30%-50%, or up to 100% (if your stocks are holding up).
I will cover this section for you in today’s “members only” Live Q&A Webinar.
Have a good one,