Trading in Fast Moving Markets

More and more traders are having increasing trouble holding on to profits and sticking to their disciplines.

This article will explain how the adage, ‘be careful what you wish for’, pertains to trading in this environment of increased movement and volatility. With the expansion of the wider than ‘usual’ movements in what seems like any and all financial instruments across the globe, and from talking to our international clients a lot more than usual, it seems that more and more traders and ‘swing traders’ (I do both) are having increasing trouble holding on to profits and sticking to their disciplines.

If any of my previous quotes/clichés/lessons etc. made any sense or not, I was just trying to paint a clearer picture, and mostly I repeat things that I have heard through the years. If I hold on to any of them, it is the mantra which I trade by, and which actually came from arguably the biggest COFFEE trader in the country (whose life is predicated on the weather too) and it is this: ‘the markets are greater than us all’.

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This is akin to how fishermen respect the ocean – I am no fisherman but I have heard that some of the best fishing is before and after a storm. The most seasoned fishermen anticipate a storm, prepare through experience, have a plan and once they are satisfied, they count their bounty. Only the younger ones or desperate ones stay out longer than they should…same as traders do. You have to take what you can get and be humble…….personally, that what gets me up every morning, STILL as excited as a rookie.

My peers at Tradeview see this and so do my clients. You can do 99 things right throughout the day but only takes one to give it up and that’s why I know that the markets are greater than us all. We are only as good as our last trade.

As mentioned above, when volatility, like now, has increased and has stayed volatile in this manner longer than usual, I actually think that it is detrimental to traders, even though there is ample opportunity to make more. Some reasons are obvious and some not so much, but what I have found by talking to some retail clients is that many are making more money and having wider P&L swings than usual. Bravo.

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Our traders and clients now have a higher win percentage than they usually do (this comes from timing the markets because when you are right you are right with all in wide futures moves). What is alarming is that their average LOSER far outweighs their average winner. Why is that?

One common trader problem- sell winners and hold losers. I fell into the trap late last week which upset me so much that for the first time since I can remember, I had to take a couple of days off (side note: it had nothing to do with losing $ on the trade which was nominal- symbol was $XON on NYSE by the way). On Thursday a few weeks ago I bought a bunch of biotech stocks, as many others did when they were due to ‘bounce’…and they did. Some stocks I bought were not holding too well, and in fact were beaten down the most. I urge you to take a look at these charts (HZNP HRTX ESPR NVAX BIB IBB…. XON).

So in these conditions, when things turn, as they did, you really never have enough. This was true except for one and the stock was $XON, which some have dubbed the AAPL of the biotech world, down 50% off its high from just a couple months ago. I have no idea what they do by the way, and it didn’t matter because the price action told me it was a dog. As I unloaded my stocks, I made a crucial mistake. Instead of adding to my winners, which were nominal in size, I sold them and sat with a large position in $XON.

I wont get into it because now I am getting upset again, but what happened to me happened to our clients. They timed the market right, on smaller positions, and added to the weaker one(s) in the hope that somehow I would be the only one watching this stock, however as I have said in many of my webcasts, in wide ranging futures moves, stocks show their hand way more than in any trending market or sector rotation.

It happened and I am done beating myself up, but the point of the article is that in extreme circumstances, extreme actions are usually taken- that is human nature I guess, but I will handle it like this from now on. If I stick to what got me here and hold on to my discipline, I wont have crazy P&L moves….I will just make more than I usually do and will hope the volatility stays longer than normal. Trade well.

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