One of the most important characteristics of a successful trader is someone who can adapt to new trading environments. Throughout the ladder half of 2011 volatility reigned supreme. In our view, during that period, day trading was the best way to play the market then because it was too risky to take positions overnight. Now however, the daily ranges in SPY (the ETF that tracks the S&P500) have been so small that it hasn’t been a great environment to day trade in. What’s the solution? Adapting to the current environment we find ourselves in.
The first step is identifying what the current market environment is. For starters, every time the market dips lately, it has succeeded in finishing off the lows of that session. That probably has something to do with the furious uptrend the market is on. The S&P500 has finished higher 5 weeks in a row and 9 out of the last 11 weeks overall.
This is the first 5 week winning streak in over 13 months. Therefore, swing trading (when you take trades more on a day-to-day/week-to-week basis) has proved to be a profitable strategy. Until we see the VIX sustain a move above 20 we no reason to doubt that this strategy won’t continue to be successful.
Therefore, continue to focus on playing stocks that are in healthy uptrends. Not only should they be on uptrends on a daily basis but confirm those trends with weekly and monthly charts as well. Why? Because you bank stocks that are tremendous daily uptrends, but on a longer term basis (like a monthly chart) many of them are still in overall downtrends. Compare the bank sector to the technology sector and are point is evident. We’d rather be playing stocks like IBM, PCLN, & AAPL as opposed to BAC, GS, JPM. (For more reading on our bullish stance on technology click here).
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- Stockhaven @ the bell 7/19/2011
- SH @ the bell 12/8/2011: Watch yields closely in relation to the markets
- Stockhaven @ the bell 8/24/2011: Will yesterday’s rally continue?
- SH @ the bell 10/11/2011: Rally can be nitpicked, but overall bullish trend in play
- SH @ the bell 1/31/2012: Technology is where you want to be