In today’s trading newsletter, we will take a look at the S&P 500, auto-trading, and more to keep your investments informed! At FFR trading, we focus on keeping investors and traders informed so that they can make smart decisions, gain financial freedom, and enjoy the benefits of passive income! That’s what this trading newsletter is all about!
The Perils of Timing the Top
With markets threatening a major correction, it’s tempting to want to capture the downside move, by shorting individual stocks, or the market indexes.
The problem is that false breakouts to the downside occur regularly. Consider this chart of the S&P 500 Year-to-Date:
As you can see, each significant downturn in the index was followed by an immediate bounce… trying to short the S&P at any point this year would have required impeccable timing, and a short time frame.
Otherwise, the bull has raged on, taking the market to ever-higher highs.
And yet, common sense – as well as sound analysis – tells us that this cannot go on forever.
The impact of massive stimulus on equity valuations has been well-covered. Everyone knows where this bull market is coming from. And fiscal and monetary policy remain committed to the goal of stimulating growth.
So how to tell whether the latest correction is another blip, or the start of a major move? Let’s look at a chart of the two market crashes of the 21st century:
Note that these are weekly bars… the first chart is daily.
So what we see when we look at the dotcom crash in ’01 and the global financial crisis of ’08 is extended downward trajectory in prices, week after week, unfolding over a period of many months.
What is clear is that you didn’t have to call the top to profit from these major market corrections. Capturing the “middle 60%” of these moves would have made you wealthy (or wealthier)!
What happened instead, though, is that most investors held on all the way down, figuring a turnaround was just over the next hill.
As a trader, your job is to put your trading strategy to the test in the markets, not to try and predict when things are going to turn around for the long haul. With your long-term investments, that matters… but when it comes to making money trading the markets, day in and day out, you’re better off leaving the crystal ball in the closet!
For a professional review of your trading strategy, call FFR Trading at 800-883-0524. Our Strategy Consultants will give you a complete assessment, at no cost.
Is Auto-trading a Good Idea for You?
Many traders have questions about whether an automated trading program makes sense for their individual trading style. Here is a quick recap of the advantages, and disadvantages, of using this kind of system.
First, there is the question of what kind of trading signals are being used. An automated system that takes bad trades is never a good idea! So if you are considering an auto-trading system, the first thing to think about is the trading strategy being implemented.
Once you find a strategy that makes sense and has a proven success record, you can look at how it might fit into your overall trading plan. There are three ways to incorporate auto-trading into your portfolio:
- Completely hands-off. You’re too busy, or just not interested, to actively trade the markets. But you still want the financial benefits trading provides. In this case, consider automating your entire portfolio. You can use multiple strategies to gain diversification and spread you trading risk.
- Learn as you go. Maybe you want to learn to be a better trader, but you don’t want to make the mistakes that so many newer – and even experienced – traders make, as they learn the business. An auto-trading system can help you execute professionally… as you learn the system rules, market analysis, and trading tactics of a professional developer, you follow along with the auto-traded signals.
- Supplemental strategy. Perhaps you are satisfied with your active trading approach… you enjoy, and are good at, self-directed trading. But you want to expand your market coverage, and you just don’t have the bandwidth to learn and apply new methods. You might choose an auto-traded strategy in a completely different market, allowing you to continue doing what you already do, while also gaining coverage, and profits, in additional markets.
For example, if you are already trading stocks and options, but want to include futures trading in your portfolio, an auto-trading system would support your goal, without forcing you to learn a whole new trading strategy.
Of course, if you are someone who just loves trading and always wants to be hands-on, auto-trading is probably not something you’ll want to consider.
FFR Trading offers several auto-trading systems, as well as signal services for the discretionary trader. All of our trading systems employ our signature 8-step certification process. Call 800-883-0524 for a strategy review, and find out if auto-trading makes sense for you!
Tilt: Poker, Pinball, and Trading
There is nothing quite so damaging to your trading career as going on “tilt.”
Tilt is a term used in poker, to describe when a player loses control of his (or her) emotions. A player on tilt throws their chips in, even when they know it’s a bad bet, hoping to recoup previous losses.
We’ve all had moments when a run of bad luck knocks us off our game, and leads to poor decisions. The question is, how to avoid letting those setbacks compound into an account-busting episode of “Tilt!”
When we start increasing the size of our trades, averaging down or doubling up to get back what we already lost, we are trading on tilt.
Originally, the word comes from pinball, where the effect of shaking the machine too forcefully leads to a shutdown. A pinball player who tilts the machine loses a ball, or even the whole game, due to their over-playing.
This, too, applies to your trading.
When you’re trying too hard, forcing the “ball” to go your way even though it isn’t, you are again at risk of trading on tilt.
In trading, as with pinball, there is a balance between directing the action and taking what the game – or in this case, the market – gives you.
This kind of tilt leads to overtrading, increasing your activity in hopes of wresting gains from the market. But guess what? The harder you shake, the more likely you are to lose. That’s the nature of trading.
Trading psychology is a complex subject. Most professional traders agree, to borrow a phrase from Yogi Berra, that trading is “90% mental, and the other half is physical.”
You definitely need good trading skills to master the markets and win consistently. But if you don’t have ways to manage your mindset and emotions, you are almost guaranteed to blow up eventually.
FFR Trading’s professional traders help you take the emotional decision-making out of your trading, with self-executed and automated trading signal services. Call us at 800-883-0524 to learn more or contact us via email or our contact form.
Thank you for tuning into our Trading Newsletter. If you are interested in learning more about our trading strategies or would like to speak with one of our client care specialists for more information, give us a call at (800) 883-0524 or contact us via email or our contact form. Be sure to visit our Instagram, Facebook, and Twitter for more frequent trading news and market updates. Happy trading, everyone!