Playing the Rally

We play the market
whichever way it goes. The strategies employed are not
textbook day trading strategies, though the moving average plays and
earnings plays can be one day plays at times. Given the market
conditions, we have
had to watch our trades much more diligently.
That is why we always
stress, regardless of market conditions, being defensive, setting stops,
advising your broker of bailout points, etc. That is also
why we look at plays from a short term perspective as well, noting
resistance, support, increased selling, etc. That way you are aware of
support and resistance, and if you are in a longer term play but the market
and the stock start to falter, you have the information to make prudent
decisions about whether you want to sell or hold.
If the market is
falling, you don't want to be trying to figure this out for the first time.
It helps to plan ahead: if ABC stock breaks support at $90 and the market
is falling, we plan to sell. It helps keep emotion out of the equation, and
that usually results in a better bottom line. So, we follow stocks
closely and on a daily basis; that is what we do.
That may give the
appearance of a day trading service, but we do not employ many strategies
that you would call day trading strategies.

Let's say you are worried about the markets' prospects over the next couple
of months, and think we could be headed for another low.
As an educated investor, you
have choices. You can reduce your exposure to the market by selling any
non-long term holdings and sit on some cash while you wait for the market
to find its direction. Not necessarily a bad choice as noted in
the past.
If you think the market is going to tank and you have nice
gains, that may be the right choice for you. Instead of just sitting it
out, however, you can play the drops and the rallies to the upside with
shorter term trades, picking your spots depending on what the market is
doing. You can play a rally, make some profits, and get out if things turn
south.
Let's face it, if you are looking to get out before any real
carnage, you would stay in until things started to look ugly, right? Why
not just shorten the window a bit and pick up some easy money?

Doesn't
mean you have to change your overall investment strategy, just adapt to
fit the market at hand. We have trades we hold for days, we have trades we
turn over in a day (truer day trades, but still really not day trade
strategies). It all depends upon what we are looking for out of a
play: playing an uptrending stock for a few days, riding a breakout for a
few days, or playing a technical bounce on a moving average play for a day
or so.

Regardless of the strategy, however, you cannot forget about what the
market is doing. In 98% of the cases, the market is the final arbitrator
of our plays. Unless you are strictly buying to hold for 5 or more years,
you have to keep an eye on what the market is doing (and then you should
keep an eye on things).
Otherwise, you may be involuntarily forced to change
your view to long term or be ready to swallow that toad (meaning closing a
losing position) and move on. We do have our long term holds that we are not
planning on selling (at the moment, anyay (XEL); we actively manage
even these, however, selling covered calls when they have topped so we can
capture returns not only when the stocks appreciates, but when they go down
as well. And we will still sell these if they have changed in such a way
that they no longer fit our criteria of earnings growth and market
leadership.
If we are riding a trend and the trend breaks down before a
forecasted split announcement, we seriously look at getting out. That is
just good management. With the market still in a state of extreme flux, if a
stock starts waffling on you and breaks its trendline, do you want to
take the chance that the market will hold up long enough for your stock
to turn around?
We feel it is better to have stop losses set or at least
have our brokers on board with instructions on when to call us or
get us out if we are not available. For online trading, we set stop
losses on our stocks. It is more difficult for online options
trading, as some services do not let you set stops on options trades.
Still, there are steps we take whether times are steady or turbulent.
When we place an order, we make sure our limit orders (NOT market
orders) on buys are confirmed as filled before we log off.
We keep
tabs on the play several times during the day to know where the
market is going that day and if the stock is following the market. If we
cannot get to our terminal or log on somewhere, we make sure we have access
over the telephone to a live broker who can execute trades on our account.
In this market, we feel that is a necessity. Conditions
change.
We have to adapt. Some trades we just don't make if we are not
going to be around. When times are good such as during a rally, however, we
try to make the time, this is our business, and we know many, many of you
want to escape and make this your business.
Treat it as such, and know the
plays you can and cannot get involved in based on the market conditions and
your ability to monitor positions at that time.

Keep your head in the game, have a plan, act according to your plan.

Larry Potter