Choppy market

Dec 31, 2021 07:50 AM 0 Answers
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Hi Marty,

Thank you for the service this year, it has helped my trading a lot. I wanted to ask you a question: In the last few weeks I have been chopped up a bit by the market (some winners but many small losers). What is the best way to avoid this? Is it a case of less trading and more patience? Only waiting for the best set ups?


Thank you for your kind words. I believe we are all guilty of over trading. But, it is OK to "probe" the markets with ultra small trades as it will provide you instant feedback. Yes, it is wise to wait for the proper buy points to enter a stock as that is our best risk/reward scenario.

The growth stocks changed character when the Federal Reserve Chairman, Jerome Powell, spoke at the senate banking committee hearings. He was auditioning for a second term and spoke in hawkish terms.  Our growth stocks took a severe beating since then, and every time I probe the markets it usually ends up being a small loss. This tells me to stay away just like burning a finger on the hot stove. you don't need to keep doing that to learn the lesson.

I will use AMD as an example of how to trade properly. AMD is a stock that I own and believe it has future growth and its price will appreciate over time.  But, the stock only offered five or six true proper buy areas in 2021. It would take an extremely disciplined and patient trader to wait for this exact buy points.

AMD formed a base from January to the end of July. On July 27 the stock was a buy at an early entry buy point of $89.20, and it provided another buy point the next day at $95.44. Then again on October 18 it provided another buy point at $114.19.  On November 1, three days after its most recent earnings report it provided another buy point at $122.44.  Most recently it pulled back to its 50sma and provided an add-on buy point at $144.85.

We do not want to buy in the base. We want to buy before the breakouts and capture the appreciation when a stock advances. How many traders have the skill to buy at those exact buy points? The answer is likely to be zero!😂 But, we can see from the chart that there are only a few times through the year when a stock is actually trading at proper buy points.

I was going to do this exercise with AMD TSLA and NVDA for my weekend report. So, I thank you for bringing this topic in the question format.

Once again it is OK to trade small to probe the markets. If you continue to get stopped out with small losses the market is telling you to stay away. Sometimes during the rotation I will buy a "value" stock and it works for a day or two, and then it gets washed out. The rotation this year whipsawed many great traders, and made trading a challenge.

I hope this answers your question!




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