Try harder when the market is good
What do successful traders do ? They avoid bigger losses and that way they have more gains than losses to count for. They trade when the odds are in their favor and chances of losses minimal. Institutional traders are different because they trade both ways and successfully control the market which is a finite domain.
When the market is down there is a great tendency by retail traders to rope the beast. They go in the rodeo day after day and they try very hard. They cannot sit still and let the storm pass. They are programmed to work as if this a 9-5 occupation and call for duty with a solid work ethic.
But it does not works the same way in stock market trading and they way things go. This is not like other kind of work in the sense we are trapped from 9-5 and we have to bring home the beacon. Trading stocks is a risky venture and there is always risk what you have you can lose. There is nothing you can do about it either.
So on days when the market is bad there is a great urgency to try harder and work harder. People looking for trades all over and even griping there are no stocks to be found. They get to the desk only to find out the wind is blowing too hard for the lemonade stand to stay afloat till the afternoon. But they set it up anyways. There is storm out there but they are willing to brave the soul and drive home some beacon and cheese or bring in some milk or coffee to the proverbial cave. It is this hunter instinct in us that gets us in trouble.
When the NYSE board is showing you 500 stocks advancing and 2000 declining and the advance decline line is down, any long trades are subject to greater risk. Even the greatest stocks will fail you. The leading names will go like crackers in a bowl of soup. These pattern which look good have an inherent weakness. There are lots of shorts out there trading against you and you don’t know it. The institutional computers are trading against you. When you an Advance / Decline looking like this -1500 that is kind of the day that has lots of downside risk.
I have been on this road myself when I started. I would go for the hunt everyday and I would lose money. Soon something became apparent to me. The days I don’t go for a hunt I would not lose ! it was not easy to train myself that way.
So what do you do when the market is not doing well ? Lets first define what do we mean by the market not doing well ? If you see all three major indexes in the red and advancing issues are 50 percent of declining issues that means if there are 500 advancing stock s on NYSE and there are 1000 declining stocks or a ratio of 1:2 the market is not healthy for long trades and the market is not doing good unless you are a short seller.
For the short sellers the market is extremely good and if you can short the hell out of something that is great. But for most folks you need to sit on your hands and wait. You literally sit on your hands and do nothing. Watch the market if you wish and wait.
The waiting game could be long. It takes time for the markets to recover from a plunge. Doing nothing for days seems like an awful waste of time right ? But it is not. It is a position. Staying in cash is a position and very strong position indeed. That is one of the characteristic of successful traders or retail investors.
Try harder when the market conditions are in your favor and and try harder when the market is good. The gains made are lot better than the times when the market is unhealthy. There is no holy grail here it is just common sense.