There’s definitely been a theme of choppiness in the stock market recently. If you go back to late February 2013, it looked like the rally was potentially over as many stocks started to break down…but then a strong bid showed up and took us to new highs. We stayed in a narrow range during the last 2 weeks of March, only to be met with some serious selling pressure in early April. Once again, just when it looked like the party was over…that “magical” bid appeared once again and we moved to new highs.
Now it’s April 11, everything looks great, and then the market sees MORE heavy selling over the next 5 days. NOW IT’S DEFINITELY OVER, RIGHT?…Not so fast. The next 5 days brings us close to new highs again. This market has taken more gunshots than 50 Cent, and every time, it just keeps coming back! For those of you who don’t follow rap, another analogy would be comparing the market to Sylvester Stallone fighting the big Russian in Rocky 4. For those of you who STILL have no idea what I’m talking about, get out of your house more often!
So now that we’re close to new highs again, the big question is: Where do we go from here? The answer is I have no idea. No one does! I simply follow my stocks, do my best to stay in the strong ones, and cut losses quickly on my losers. That’s all you can do at this point. Stay mentally tough, have conviction in your ideas, and trade with confidence.
The second question many traders have asked me is: How do you deal with all this choppiness? I have two answers: 1) Take smaller positions. The main reason for doing this is to give yourself a little more room so you don’t get chopped to pieces by stopping yourself out all the time. For example, what’s the difference if you win/lose 4 points on 50 shares or win/lose 2 points on 100 shares? It’s the same math. 2) Make adjustments to the trend. In other words, look to take some profits into the strong days, and look to buy support on the weaker days.
I’ve wrote about this recently on my blog. You have to have certain rules with your trading, but you also have to know when to bend them and adjust to the market conditions. I will discuss this topic further on my weekend show. Good luck trading!