Market Games: Choose Wisely, Do Less

Bull markets last long enough to erase the memory of most market participants of how it feels to be in a correction and what should be done.

Back in January this year, most people disbelieved the rally and were very cautious. The second half of 2011 was the definition of a trendless, high-volatility, choppy environment and over time it conditioned most of us to be very nimble and take profits quickly. Most breakouts failed, mean-reversion from overbought and oversold reading worked almost flawlessly.

As the bull market climbed a wall of worry, more and more people started to figure out that breakouts are actually working and delivering solid results.

In bull markets, corrections happen under the surface and take the form of  sector rotation. When financials and tech took a breather, biotech and consumer discretionary took the leading role and the indexes barely budged. All dips were a great buying opportunity in hindsight. Somewhere along the way, people realized that instead of jumping from a setup to setup, they might be much better off just riding three or four strong stocks.

The market has been really accommodating in the first 3 months of the year, to a point that it created complacency. Naturally, when a shift in a character came, most people were slow to react.

We entered a choppy, high volatile environment, where many breakouts will be short-lived. We will see stretches of several red days followed by a pocket of green days that will continue long enough to confuse everyone.

Recency or our tendency to  pay enormous attention to the most recent price action has huge influence on our psychology. A few red days in a row and everyone turns bearish and give up positions bought on a dip, just before the market is ready to bounce. A few green days and everyone thinks that all is well and new highs are on the horizon. Don’t judge the market based on one day of market action.

Trednless markets could be very stressful to those who don’t notice the change of market character and rethink their tactics.  Stress leads to overtrading and the latter is a really dangerous endeavor in a choppy market environment. Overtrading leads to losses and losses lead to a loss of confidence, which is the last thing you want to happen to you, because your decisions will be ruled by fear and not rules.

Greed and fear often trump experience. The choices we make every day define the quality of our  lives. We are in the business to make money, not to make trades.

Choose wisely. Do less.

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

You might be interested in: LinkedIn Closes At All-Time High Along With 35 Other Stocks (ivanhoff.com)AFLAC's Earnings Call (crossingwallstreet.com)Stocks: Choppy trading ahead (CNNMoney.com) View the discussion thread.blog comments powered by Disqus

My name is Ivan Hoff. I am a stock trader. I manage Stocktwits 50, Stocktwits Email and was featured in The Stocktwits Edge, which I edited. (More)

GA_googleFillSlot("MidRec_Top_BlogStaff"); Search for: STWT.Widget({ user: 'ivanhoff', title: 'My Ideas on StockTwits', avatars: '0', width: '300', height: '400', limit: '15'}); Recent Posts Market Games Market Noise or Why Recency Bias Hurt Us The Spike In Gold Is Not a Good Sign for the Stock Market There Is a Difference Between Knowing and Doing 10 Ways to Make Sense Out of the Market Insanity The Sleep Index Has Not Been Sleeping The Most Important Stock Market Leading Indicator Today When Cheap Is Expensive and Expensive Is Cheap 9 Insights I Learned from Reading Backstage Wall Street This is Not the First Time Apple Pays Dividends Archives April 2012 March 2012 February 2012 January 2012 December 2011 November 2011 October 2011 September 2011 August 2011 July 2011 June 2011 May 2011 April 2011 March 2011 February 2011 January 2011 December 2010 November 2010 October 2010 September 2010 August 2010 July 2010 June 2010 May 2010 April 2010 March 2010 February 2010 January 2010 December 2009 November 2009 October 2009 August 2009 July 2009 June 2009 May 2009 April 2009 March 2009 February 2009 January 2009 December 2008 November 2008 October 2008 September 2008 August 2008 June 2008 Home | About | Contact | StockTwits.com | Disclaimer

This material is provided for informational purposes only, as of the date hereof, and is subject to change without notice.This material may not be suitable for all investors and is not intended to be an offer, or the solicitation of any offer, to buy or sell any securities.

Copyright © 2012 Ivanhoff Capital. All rights reserved.

//= 0) { query += 'url' + i + '=' + encodeURIComponent(links[i].href) + '&'; } } document.write(''); })(); //]]> _qoptions={ qacct:"p-e7BooXV8mdHeU" }; clicky.init(255346);

var _comscore = _comscore || []; _comscore.push({ c1: "2", c2: "6035748" }); (function() { var s = document.createElement("script"), el = document.getElementsByTagName("script")[0]; s.async = true; s.src = (document.location.protocol == "https:" ? "https://sb" : "http://b") + ".scorecardresearch.com/beacon.js"; el.parentNode.insertBefore(s, el); })();

My name is Ivan Hoff. I am a stock trader. I manage Stocktwits 50, Stocktwits Email and was featured in The Stocktwits Edge, which I edited. (More)

This material is provided for informational purposes only, as of the date hereof, and is subject to change without notice.This material may not be suitable for all investors and is not intended to be an offer, or the solicitation of any offer, to buy or sell any securities.

Copyright © 2012 Ivanhoff Capital. All rights reserved.

Read Full Article »