Pullback Mode, Don’t Get All Excited

March 6, 2007 at 10:47 pm by Will

Have a look at the SPYders:

SPY

It’s a pullback after a down thrust. Yet everybody’s running around like chickens with their heads cut off. Really. I’ve seen ‘em.

My response? What, are you playing this thing blindly? Where are your rules?

You trade with trend lines? The trend broke. You’re in cash, waiting for a higher high to cancel the breakdown, or more likely, a setup to get short. Not “should I jump in here” or “I think it’s headed up, I’m afraid I’ll miss the ‘buying opportunity’, what do you think” or “woulda, coulda, shoulda”.

You trade off moving averages? You’re either out (50ma), waiting for a break (200ma), waiting for a crossover (50/200, you must be crazy), or whatever. The bottom line is, you’re not wringing your hands. The stop is in place. Have another drink.

You daytrade? You’re on your knees about now thanking God for sending you some volatility after all these years. Finally, some action!

What I’m hearing are the histrionics of the Water Cooler gang. Armchair traders who like to talk trading, who take credit for their 401(k) balance rising in much the same way they talk about “building” their house when they’ve never driven a nail. Laying claim to someone else’s skill, in other words. There’s an Ayn Rand lesson here somewhere.

The real traders are calm, even smiling now. Like a good blues player hearing someone taking off on Sweet Home Chicago. Been here, done this. You just lead off with a few bars, Mr. Market, and we’ll be right with you before the chorus.

If you are playing this thing blindly, devise yourself a game plan, and quickly. Don’t jump in or out because you think it is going to do anything. Decide 1) where you’ll sell and why, 2) where you’ll buy and why (and where the stop will be when you do), and 3) where you’ll sell short and why (and where the stop will be). Write those numbers down. Pay no attention to CNBC, the chartman, Cramer, the guy at the bus stop, and especially the folks at the water cooler. Devise your own rules. Follow your own rules. You’ll be glad you did.

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