Morning Market Thoughts
Good morning. The S&P is closing in on 40 days of a historically tight sideways drift. We’re seeing just a bit of selling after Mario Draghi, the head of the ECB, made some dovish commentary…but apparently not dovish enough. Cutting through all the crap that fills any statements by any central banker in explaining their forecast, Draghi basically said that the ECB expects economic recovery to be slow…but steady. Inflation isn’t going to increase as much as previously forecast due, in part, to the uncertainty surrounding Brexit. Seems pretty reasonable to me.While an upside bias remains, but I strongly suggest that you refrain from attempting to impose your will and your preferred timing on the market. That’s an approach that is unknowingly attempted by many, many traders.
And it never works. The market is going to do what it is going to do.
For every trader who is desperately hoping for the market to spring higher and reward his upside exposure, there is another trader who is desperately hoping for the market to crater and reward his downside exposure. Hope isn’t a viable trading method, and both sides of the “desperately hoping for…” crowd are probably going to be wrong.
Desperation has no place in the mind of a trader. Instead, you should strive to find a balance in your trading/investing decisions. You must remember that failure to put your money at risk makes it a certainty that you will not make any money. Inflation isn’t an issue, so you’re not losing ground on the value of your money — but you’re just not making any more of it. Conversely, putting your money at great risk by making really big bets that have the potential for huge payoffs also increases the likelihood that you will lose a lot of money. Portfolios (or individual positions within a portfolio) with high risk can lead to great rewards…but you can’t really get away from the fact that you are taking a lot of risk. Focusing solely on the reward is not wishful thinking; it is just fractional thought. It’s incomplete analysis that leaves a gaping void in your trading plan. And the void is a critical one because you are ignoring the one part of the trading process that can be fatal to your results. And that’s the part that you should be most aware of.
In my personal defense training, one concept that permeates everything is the need for a plan. Why? Because panic fills an empty mind. If you don’t have an SHTF (“sh1T hits the fan”) plan, you will be at maximum risk when the danger is the highest.
This is a concept that is important for every trader to embrace. Don’t spend your life fretting about all of the bad things that can happen; just spend a little time planning for them. And if you have a plan in place, then your stress level goes down. You go from “OMG. The SHTF! What do I do now?” To “Hmmm. SHTF. Must implement SHTF plan.”
Briefly, what’s your SHTF plan? It’s composed of proper position sizing, definable and logical stop loss levels, having an unemotional reason for every action you make, and a clear and logical reason for every position that you take. Seems simple enough. But this is something that few traders actually do, which is why trading can be so difficult for some.
See you in the forum.
–Dan
Market Update