Right Now – The market is at a critical juncture. The Dow is hovering around 16,500. On February 22, the market was up over 200 hundred points and closed above 16,500.
The next day, the market was down 188 and closed below 16,500. When it was up, it looked like it would not stop. Facebook was strong, oil was strong…everything strong. When it was down, it looked like it would keep falling. Facebook was weak, was oil weak…everything weak.
It’s hard to make a big play when you get such different looks on back to back days, isn’t it?
In speaking with my Chief Market Strategist, (he’s also a CMT which is the highest level of technical trading there is), we both agreed that it looked like there was significant room to the downside. But we also disagreed.
He thought we would go up, possibly 750 points higher before heading much lower; I thought we were much more limited on the upside, and more likely to head down faster.
Everyone enjoyed the back and forth and we both made good points… which leads me to a much bigger point. If you have 2 experts in the same company, who are over 500 points apart , how can you make a big play? You can’t.
Big plays can only be made when there is a strong fundamental story; a strong technical story, a conviction, and an irresistible risk/reward scenario.
A recent example that comes to mind is August 24th, 2015. The market opened so far down, that every professional trader I know was buying whatever they could…as fast as they could.
The market opened at 9:30 AM, and I was at my buying power before 9:31. This means, I was all in. I had bought thousands of shares of AAPL and AMBA and it was as if an ATM machine were broken and spewing money for two hours.
March 2009 is another example. Big name stocks like Wells Fargo had lost over 80% of their value so the risk/reward was off the charts.
These are unique opportunities in time where you are buying as fast as you can. The rest of the time, 99% of the time, is where you need to be trading small. In order to take positions with conviction and be able to stomach the swings of the market, you need to be small enough to stay in your trades and maneuver easily.
On February 22, I was short the market. Seeing it shoot up was not fun. Watching it go through 16,500 was disheartening. All that said, I was able to stay in my trades because I was light.
Had I been loaded and taking a big loss, then emotion could have crept in; and if I thought I couldn’t take it anymore, I might have gotten out. Instead, I was able to stay put, and my conviction was rewarded the very next day with a nice sell off. Either way, it’s all part of a bigger plan.
If the market shoots higher, my biggest hit is the opportunity to make money as the market goes up. If it goes lower as expected, then I profit on the way down. My goal is to be in the perfect position to take advantage of that particular day, week or month where opportunities are created that will make my whole year…and beyond.
That is the reason you want to trade small 99% of the time; so you are always in position to take advantage of that 1% of the time when there is an incredibly unique trading opportunity. Had I been “all in” on August 23rd, I would have just lost less money on August 24th. Instead, it was the best day of the year for me.
My goal is to help you have those kinds of “best days”, and to help you prepare to trade for yourself. So start with the basics…trade small…and start preparing for your best year right now with this book.
All The Best,
P.S. “Failure is only the opportunity more intelligently to begin again.” – Henry Ford. When you trade small, it’s easy to start over. Start Here.
Adam Mesh is CEO and Founder of The Adam Mesh Trading Group. For the past 18 years he has coached thousands of students to all levels of success in trading. He is also creator of the revolutionary Advanced Beginner’s Guide