No Monkey Business
• TWO TERMS—stimulus and groupthink—may have injected optimism into the markets. But in an already-raging bull market, excess optimism warrants caution. As the “reopening trade” signaled pent-up demand for anything associated with leaving our homes and returning to “normal” (whatever that means now), we saw bouts of euphoria in the markets. And it caught the attention of traders and Wall Street. Although some will say what we’ve seen looks like the late 1990s before it all burst, history doesn’t necessarily repeat itself. But it can open the floodgates for a new breed of traders chasing the next set of story stocks.
And that’s the rub with the stock market—you never really know where the truth lies in relation to value. Get too complacent and the market can turn against you. No matter what social media is murmuring or the pundits are spewing, there’s no substitute for due diligence. Trading decisions as well as long-term investing choices need to align with your financial goals. It’s really about your relationship with the market and knowing what triggers a trading signal for you. And before you forge ahead, it’s important to have an exit plan in place.
Easier said than done? The good news is there are several ways to do this. Think about what’s important to you and how to achieve it. What type of risk management strategies align well with your goals? Maybe you use charts and place stop orders based on breakout levels, Fibonacci retracements, or trendlines. In the heat of the moment, it’s easy to lose your focus. You could turn a perfect setup upside down and end up with a loss. What could possibly happen to your can’t-lose, six-indicator, oscillation-channeling-stochastinator setup? Take a look at “The Five Biggest Charting Mistakes You’re Probably Making” on page 16. These tips could go a long way to help you avoid making embarrassing charting faux pas.
We spend a lot of time thinking about what to do when a trade goes wrong, but what if your trade’s going right and reaches its profit target? Should you get out even if you think you could squeeze some more returns from the trade? Gut instinct is cool if it got you here, but lightning rarely strikes twice. You can flip to “How to Exit a Trade (Without Losing Your Mind)” on page 20 to learn some options strategies that could help you lock in profits without leaving money on the table.
Savvy traders embrace volatility and whatever the markets offer them. Part of their plan is to actually have a plan and stick to it. Exuberant markets can be fun on the way up, but in the end, it’s not about how much you make; it’s about how much you keep. Plan your exits, win or lose, and you’ll be ready to trade the new normal.