“Life moves pretty fast. If you don’t stop and look around once in a while, you could miss it”- Ferris Bueller
The world we live in travels at breakneck speed. Everyone is looking to do things faster. Speed seems to be the best known secret to success, and the faster you can grab the data you need, process it, and spit it out, the better your end results will be. Or so they say.
With trading, there is no denying that speed is critical when it comes to technology. You need a fast internet connection, a fast processor in your PC, and charting programs that can update your graphs and quote windows in real time. Even milliseconds of delay can cause your orders to be slow to get routed, and you will wind up late in the queue.
Outside of technology, speed in trading can cause you to make emotional reactions and sloppy trades, both resulting in damage to your business’s bottom line. There are usually a few reasons that you will rush into a trade. First, you may only have a limited amount of time that you can trade. Second, you are concerned that you will miss the “best” move of the day/week/month, whatever. And finally, you are chasing momentum, trying to get onboard a move before it ends and you miss out. Unfortunately, I am an expert at these, having multiple first hand experience with each.
When you only have a limited time each and every day to trade, it makes sense that you want to get the most out of the time you do have. Here’s the thing- the market could care less about your time available to trade. Just because you can fit it into your schedule, that doesn’t make it the correct time to put a trade on. Rather than rushing to find something to trade, this is the time to do the exact opposite. Purposely slow down and make sure that everything in your routine is lining up correctly, and that you are taking the trade for the right reasons, not because you are on your lunch hour. It stinks to have to exit a trade prematurely because you have to run out or go back to work, and this leads to a very bad habit, which is holding on when you shouldn’t. Rather than taking the loss because you can’t manage the trade, you decide to hold on, or put in a last gasp order back at breakeven and hope that it gets hit sometime while you are away. Even worse is if this actually does a occur in a few times, as it will only re enforce the bad habit. In the end, it will just cause you to become disenchanted, or worse, financially wounded, if not broke. If you only have a limit on when you can take trades, stay within those time parameters, win lose or draw. It’s the only way you will have a fighting chance.
There are no “have tos” or certainties when it comes to the financial markets. While there are certain times throughout the market session when there is better travel range than others, those times may not always be the best fit for your trading style. If you are experienced, the first half hour is usually volatile (news and economic report releases notwithstanding at other times of the day) and lunch time becomes slow and boring. Usually does not mean always, and there are often excellent opportunities throughout the session that you can take advantage of if you match up your temperament and the market’s roadmap. The same holds true for the time of the month, and the season of the year. There are tendencies that are present throughout the year, but that doesn’t mean that you have to cram all your trading in before those times pass. Even in mid-month or summer dullness, there are often times still sectors that are moving, you just have to identify them.
Finally, chasing momentum can be a futile task, often leaving you wondering how you managed yet again to grab the exact top or bottom of the move, only to see it reverse in your face. The first time that I remember this happening to me (and I doubt it was the absolute first time it ever did) was back in 2000, when I decided to short a stock at the market because I just HAD to get in. At the time, the uptick rule was in effect, so I filled at just off the very bottom of the move, exactly when the stock turned tail and rallied for 2 hours straight. That sucked some of the life out of me, and it was a giant hickey I never thought I could recover from.
There is a big difference between measuring and using momentum to take trades and jumping into a move thinking that you will miss it. If a move is going to sustain, it will stop along the way and pick up more fuel for the ride. These pauses take the shape of flags and pennant, and are the safer way to get on board a trend. They provide levels where you can recognize that the pattern isn’t working as expected, allowing you to cut your losers as quickly as possible. If the trend is indeed going to continue. it will usually continue out of one of these patterns quickly, but there will still be plenty of time for you to get positioned, if you choose to do so. If you miss the big move, and the stock is now taking an extended breather, that may be even better. Mid and late day consolidations can often times provide launching pads for moves that are equal in intensity to those that led into them.
There will be plenty of time for you to catch a move, so if you miss the one today, tomorrow or next week, the market will be there when you have more time to map out your trading plan.
And finally, remember the infinite wisdom of HJS:
“There are three ways to do things- The right way, the wrong way, and the Homer Simpson way. The Homer Simpson way is the wrong way, just faster”- (paraphrased) Homer J. Simpson