Morning Market Thoughts

Good morning. Futures are up this morning, with the Dow Jones Industrial Average set to open up more than 100 points. Some stocks up…some stocks down. Sprint (S) is up to test the 200-day moving average, though the stock has been under significant distribution for much of this year. (Look at the chart. Many wide ranging days, with tall red volume bars.) Under Armour (UAA) lost less than expected…but the stock is still down.

The Dow has closed higher 6 days in a row. Now, as we start a new month, the count starts over again. My bias is in favor of the bulls tiring as many finally remember that the late summer is often the time that equities start lagging due to a lack of catalysts.

This afternoon, Apple (AAPL) reports and I’m intensely interested in the conference call. Why? I want to get the next iPhone upgrade and am hoping that I can do that sooner rather than later. If they could figure out a few more fitness/sleep features, I might even buy a watch. (A feature that actually helped you fall asleep and stay asleep would be a game changer. I stay awake at night worrying that I might not be able to get to sleep.).

One trading thought: Can you write, with specificity, your trading style? Do you have rules? Do you have filtering mechanisms? Are there any patterns or setups that you prefer, or will you trade anything that “looks good?”

I believe that you’ve got to have a specialty. You’ve got to have a trading style that you can articulate with bullet points. You’ve got to be able to explain it to someone who does not trade. It has to be simple; though not necessarily “complete.” There must always be room for deviation because every situation has some differences from other, similar situations.

For example, the fundamentals should show strong growth…assuming you like to buy rather than short. But not every stock you buy needs to have strong growth. Perhaps its a new company…or is in a new industry. Or perhaps it’s in an industry, such as banking, that doesn’t allow for the type of growth that other sectors do. This stuff is all relative…but you’ve got to understand the fundamentals so that you can decide if they matter to you.

Charts are a completely different story. There are many ways to use them. Uptrends. Downtrends. Bases. Identifiable patterns like head & shoulders, cup and handles, etc. Pick your story, and then focus on that story. Get good at trading specific types of charts…and then use the chart as your filter. If the chart doesn’t look good to you, then the stock should be dead to you. If otherwise, your methodology has a “wishful thinking” component to it — a common (and detrimental) aspect of many trading plans.

If you don’t know what your specialty is, then you don’t have one. And that’s ok. You’ve got to start somewhere…and at least now you know where to start. Figure out your plan, and then trade that plan.

I discuss this in one way or another in every strategy session as I try to prompt you and guide you in crafting your plan and then following it. But don’t just absorb it — be an active learner. I watch training videos, read books, and attend as many workshops as I can. I’m an active note taker. Those notes are powerful because they ultimately find their way into the process of refining my trading plan. Always refining. Always improving. Always reinforcing. Never complacent.

I’m a different trader this year than I was a year ago. And I’m also a BETTER trader than I was a year ago. I make better decisions with more rigorous attention to risk. My rules are rigid and are only broken when I make a mistake. When that happens, I admit the mistake, reinforce the importance of the rule…and then move on to the next trading decision.

Yes, I’m better than I was last year…but not as effective as I will be next year! I can’t wait.

–Dan

Market Update

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