10 Tips If You Are Losing Money In A Bull Market

There is really no such thing as an “easy” market to make money in, however some types of markets are more conducive to success than others, and right now we are in the middle of one those types of markets.

If you are not making money in the market right now, you need to seriously re-evaluate your trading (and conversely, if you are making money hand over fist right now, you need to make sure it is because of your trading, not because everything is just going up).

So if your trading P/L is currently bleeding red, here are ten tips that might help put it back in the black.

1.  Cut your position size – Everybody goes through losing streaks, and if you are in one right now you should be progressively cutting your position size down until you return to your winning ways.  This ensures that you are trading the smallest size during your worst periods. Think of it like an out of control night in Vegas; as it gets later in the evening you should be drinking less, not reaching for the beer-bong.

2.  Stop trying to short stocks –  No matter what type of market we are in, short selling is probably the hardest thing for a trader to do profitably on a consistent basis. Those that can are part of a very small and specialized group of traders.  It may seem “cool” to try to make your money selling short, but what is really cool is just making money. Besides every time you short a stock, somewhere a kitten dies.

3.  Trade less (make more) – Take it easy Racer X, you don’t have to be going full bore all the time, (besides you’ll never catch the Mach 5 anyway).  There is no law that says you have to trade every day of the week.  If you are consistently losing money right now, trading more often will just increase your rate of loss.  Dial it back a bit and take that extra time to review your charts and find optimal set ups.  Then maybe Trixie will finally pay attention to you.

4.  Stay out of low-priced stocks – Trading cheap stocks may seem tempting, especially if you have a smaller sized account, but these types of stocks are often illiquid with wide spreads relative to their price.  Not unlike short selling this is a very specialized trading niche, and right now there is no lack of well capitalized and liquid stocks making nice moves in this market.

5.  Pay attention to what the market is telling you – If out of the blue your wife starts going to the gym, getting “elective” procedures, and wearing high heel boots to “work,” you better pay attention or know a good divorce lawyer.  Each time the market takes a nosedive I see the streams come alive with traders closing out their longs, or going short. But that is not what the market has been telling you.  It has been telling you that this is a “buy on the dip” market, where you add to your longs on support and you certainly don’t short there.  At some point this will change, but until then don’t try to go against the grain.

6.  Trade in the best sectors – The overall market tone is the most important factor in moving individual stocks, and right behind that is sector performance.  If you are not trading stocks in the sectors that are moving with the market, you are putting yourself at a great disadvantage.  Just look at the coal stocks during this recent rally; they have been nothing but dogs.  Make sure that you are trading stocks in the sectors that are moving up with the broader market.

7.  Check your methodology – Or more importantly, make sure you have a methodology.

8.  Review your risk/reward ratios – Are you averaging larger losses on your losing trades that profits on your winning ones?  If so you need to adjust your risk/reward parameters when entering a trade.  The minimum you should strive for is a 1:3 ratio, which means you can “win” on a smaller number of trades and still be profitable.  For more info take a look at my “Deconstructing A Trade” videos where I cover that subject so often you will want to puke….but in a good way.

9.  Eliminate external distractions – One day in 2005 I was battling a bad market, a bad Wi-Fi connection, and was forcing bad trades.  Even worse than that, my wife kept bugging me every three minutes or so. “Honey, can you come over here?”  “Yeah, yeah, just give me a minute,” I would say. Finally she said, “honey, I think the baby is coming!”  Out of deference to her, and the doctor, and the nurse, and the intern staring at me, I closed my laptop and stopped trading for the day.  (Oh man, I wish I was kidding about this story). Point is, if there are distractions in your personal or professional life, they can often cause you to lose focus in your trading.  If you can’t eliminate them, it might be best to hold off on trading until you can get a handle on them.

10.  Subscribe to a trading service – As I have written about in the past, I am a big fan of quality subscription services.  If you are a beginning trader it is like having an experienced mentor, and if you are a seasoned trader, it is like having an extra pair of eyes on the market. The money you make in trading spends the same way no matter if you found the trade yourself, or somebody else gave you a heads up on it, so put your ego aside and make good use of this “tool.”

And of course most importantly, finding an interesting and informative free blog that talks about the relationships between the markets and life, in a humorous and relatable way, will take your mind off your trading losses and let you relax.

 

The Market Is Not Closed For President’s Day.

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The stock market has been closed for a number of reasons since its inception, some that you may feel are valid and some that you may feel are not.  They include:

  • The centennial celebration of Washington’s inauguration
  • The death of Queen Victoria, King Edward VII, and King George V.
  • The death of J.P. Morgan.
  • Draft Registration Day.
  • No heat on the trading floor.
  • The return of General Pershing.
  • Parades for both Charles Lindbergh and General Eisenhower.
  • National Day of Mourning for Martin Luther King.
  • The “Paperwork Crisis” of 1968.
  • Heavy snow.
  • National Day of Participation for the lunar exploration.
  • Hurricane Gloria.
  • 9-11 (multiple days).

The markets have also been closed for a National Day of Mourning for the funeral of every president up to Gerald Ford’s in 2007.

Today some people think that the markets are closed for a holiday called “President’s Day,” but that is not the case.  In fact, according to the NYSE’s own site, it is closed for Washington’s birthday:

Washington’s Birthday was first declared a federal holiday by an 1879 act of Congress. The Monday Holiday Law, enacted in 1968, shifted the date of the commemoration of Washington’s Birthday from February 22 to the third Monday in February, but neither that law nor any subsequent law changed the name of the holiday from Washington’s Birthday to President’s Day. Although the third Monday in February has become popularly known as President’s Day, the NYSE’s designation of Washington’s Birthday as an Exchange holiday (Rule 51) follows the form of the federal holiday outlined above (section 6103(a) of title 5 of the United States Code).

When I was in was in school we had Lincoln’s and Washington’s birthday’s off as separate holidays.  Then somewhere along the line Lincoln’s got dropped and Washington’s mutated into this amorphous, beige-paint type holiday called President’s Day.

When Abe and George’s birthday’s were both still around there were TV specials, memorials, and school plays where you could actually learn something about the life and times of the two greatest presidents in American history.  There was some meaning to those two holidays and some significance past just being a three-day weekend and an excuse for department stores to have a sale.

I mean what sort of bullshit holiday is President’s Day anyway?  Who are we honoring, both Lincoln and Washington?  Are we honoring all the presidents?  If that is the case then I am sure there are a lot of people whose heads will explode when you tell them they are honoring George W. Bush or Jimmy Carter today.

And I for one will tell you that there is no way in the world that I will honor in any way, shape, or form that bastard Franklin Pierce.

Some will try to indulge in revisionist history and say that we are honoring the “Office of the President” today, but don’t even try that crap on me because it doesn’t even make sense.  I once broke up with a girlfriend who tried to pedal that BS to me, and she was a stripper.

The whole concept of a generic President’s Day just seems so politically correct to me, like when they do away with first place awards in children’s sports and just give everybody “participation” trophies.  I don’t want my Hoover’s, Nixon’s, and Clinton’s mixed in with my Roosevelt’s, Truman’s, and Reagan’s.  One of the keys to the American ideal is identifying exceptionalism, and that should apply most when honoring the leaders of our country.

So tomorrow, after you have bought a new pair of shoes in honor of William Howard Taft or grilled some steaks while thinking of Rutherford B. Hayes, take a few minutes out of your day and email you representative and tell them you want them to get rid of this communist based President’s Day holiday.  Tell them you want a return to presidential holidays that mean something, and while they are at it, tell them to bring back Columbus Day as well.

Why Would Any Serious Trader Subscribe To A Trading Service?

Back when I used to work out with martial arts legend Bruce Lee, he constantly emphasized three important concepts to me….

1.  Be like water (my friend), be like water.

2.  Chuck Norris is a wuss.

3.  Always use every tool available in order to be a successful trader.

It’s not well-known, but Master Lee was a pretty bad-ass trader himself.  Often, after a long night of nun chucking the vast minions of some evil warlord, Bruce would spend the day arbitraging index options on the floor of the Pacific Stock Exchange.  The locals used to call him Bruce “Alpha” Lee.

Being a retail trader back then was hard work as well, not so much because of the markets, but because of the lack of tools you had access to.

When I bought my first stock in 1985 there was no such thing as real-time quotes or charting software for a retail trader.  If you wanted to get a chart on a stock you had to subscribe to a service and they would actually mail you a paper chart.

These services were so expensive that most families could only afford one chart, and once you got it, that was your chart for life.  Parents would pass the family chart down to their children, and if you wanted to trade another stock, you had to make enough money in your stock to afford another chart.

Traditionally, it was the eldest son’s responsibility to update the chart by hand every night, which was a tedious job that could lead to big problems if you were not careful. One of my best friends, Eric Phillips, actually spilled a Slurpee across a chart during this process, ruining it and causing his family to miss a cup-and-handle breakout in Xerox that could have moved them into a higher tax bracket.  He has never entered a 7-Eleven since.

Information flow on most stocks was non-existent as well since there was no Investor’s Business Daily, no StockTwits, and no CNBC (perhaps a good thing).

Nor was there online trading, and it was a 50/50 shot to even be able to reach your broker via his single line, land-based phone.  And if you did get through, you were charged what was then considered a “reasonable” 2% of the total trade amount as commission. By the way,  you were lucky if you could get a trade confirmation back in a few hours.

Back then, when I wanted to trade a stock, I would have to brave the harsh Southern California weather and drive to my local Sears where the Dean Witter offices were located. Just in back of the Craftsman tool section was the office of my first broker, Randell Woodworth. Randell would take my order, hand write me a receipt, and then ask me if I wanted to look into whole life insurance from the Allstate rep at the next desk.

             My very first “trade ticket”.  This was cutting edge technology in 1985.

But the worst thing of all about being a retail trader at that time was that there was no way to communicate with other traders, especially those with experience.

These days, with the click of a mouse button, you have at your fingertips an unending array of tools with which you can use to be a profitable trader.  And the number one tool as far as I am concerned is a subscription to a quality trading service.

When I made the transition to full-time trading I had the luxury of time; time to sit at my computer and review 100’s of charts, run scans, and read all the news flow…..but I hated doing it.  There I said it.

I HATED DOING IT…!!!!

Call me lazy, call me a slacker, call me handsome, it doesn’t matter, that’s just the way I have always been wired.  When I was learning Spanish, I didn’t like sitting in a classroom conjugating verbs, I wanted to be down at the cantina, drinking cervezas and actually speaking the language.

It’s the same with trading; I love finding the setup, figuring the risk/reward, stalking the entry, managing the trade, and then trying to exit at the best possible point.  But back then I didn’t have the choice, I had to do the “homework.”

In 2008, I was asked to join a start-up, and that, combined with the fact that I now had two young children, created time constraints that meant doing the homework was no longer just an annoying necessity, but a virtual impossibility.

That was when I slowly started to add subscription services to my tool bag.  I say “slowly” because since I was in essence handing over the analysis part of my trading to a third party, I needed to be sure that I felt totally confident in their capabilities, as well as their ability to communicate information and ideas in a way that I could relate to.

Now these services are an indispensable part of my trading, and I wouldn’t have it any other way.  And to be totally clear, I am talking about a trading service, not a trading system.  I have already covered why as a retail trader you will never be able to purchase a viable trading system.

I’m sure that there are some hardcore purist neo-Luddites who think that because of this I canmno longer call myself a “serious” trader.  Okay Jebediah, here’s an idea; why don’t you grab your typewriter, your telegraph, and your Victrola, throw them on your mule, and come join me here in the 21st Century?

If you really think about it, using a service to find trade candidates is no different than using a scan to do the same thing.  You are filtering down the universe of tradable instruments into a more focused and actionable list; the only difference being that the “filter” is not a bunch of code or if/then variables, but an experienced trader.  The bonus here is that you can also interact with that trader in a real-time way via social media.

Most of these services clock in at about $49.00 per month, so for basically the price of a Saturday night bar tab with your buddies you can get a tool that I would have killed for back in the day. And I will tell you now, if I ever go back to full-time trading, I would keep every one of the services I currently use, and maybe even add some.

The real question then is “why wouldn’t any serious trader subscribe to a trading service?”

The list of quality services out there is long, but if you want a head start on finding one, check out my list right here.  I am not associated with any of these services nor do I get any compensation for mentioning/listing them. However, I can tell you that with every single of them, I either subscribe myself or have followed their trading close enough to feel comfortable recommending them.

Once you have a few trading services as tools, the only thing you are missing is access to a witty, intelligent, and insightful blog about the markets and life in general. If you can find someone who offers that type of subscription for free via Followable, you should really follow them.