10 Market Thoughts to Start the New Year

1. Be patient with trades and setups. Do not chase trades. Let them come to you. If you miss a trade, that's okay.

2. The best setups in this market focus on extremes. Buy extreme weakness and sell extreme strength.

3. Watch for accumulation patterns that form as prices base near lows. This will get you in on "bottom" trades early.

4. Ignore the market forecasters and pundits.

5. It's all about the charts. Price, volume, support, resistance, overbought and oversold indicators are all you need to make money.

6. Manage risk vigilantly.

7. Define your stop-loss and target before entering a trade, and stick to it!

8. Keep an eye on breakouts and watch for sectors that are well represented in breakout scans. These sectors will lead the next rally.

9. Do not watch CNBC.

10. Write down a few important resolutions, post them on a big board in your office, look at them every day, *act* on them everyday and stick to them. I will post mine soon.

Comments

[jepittman:]

I especially like #9.

2008 Dec 31 04:15 PM

[Tom Armistead:]

Should I be looking at any information like EPS and stuff like that or should I just be sticking with the charts?

2008 Dec 31 04:18 PM

[Fred Voetsch:]

Good advice, but I watch CNBC to tell me what the crowd is doing. They are still way too bullish and have many lessons to be learned. The market will teach them those lessons the hard way.

--Fred Voetsch

2008 Dec 31 04:24 PM

[Paul Singh:]

Tom,
It depends on your style. If you are an intermediate or long term value investor, EPS can be usefull. My post deals with trading the current market with short term trades (anywhere from a few days to a few months).

I trade short term and find EPS and other "fundamental" tools useless. Take a look at how many "good" companies have tanked with the market over the past six months. Those who understand how to read price and volume relationships by reading charts did very well over the same period.

2008 Dec 31 05:02 PM

[Paul Singh:]

Fred,
You are one of the few who know how to use CNBC. Kudos!

2008 Dec 31 05:04 PM

[prudentinve...:]

I'll propose an 11th:

Remember your blessings and look after your loved ones and yourself. May you all have a blessed new year!

2008 Dec 31 06:40 PM

[taojaxx:]

Don't mean to be offensive in any case, but isn't that a bunch of platitudes?
Happy new year to you all anyway and good luck in your trading/investing,

TJ
;)

2008 Dec 31 06:51 PM

[whisperonth...:]

I like #9, but I really love #4. If there was a ban on analysts and predictions, I wonder if we would have had such an ugly outcome?

Do I know what I'm doing? Probably not. Did I lose money in 2008? Yes, but no more than most. My glass is half full.

Jan 01 08:22 AM

[Glenn McSpa...:]

Thanks Paul. Will you write a piece on what you mean by "accumulation patterns" in #3?

Jan 01 10:14 AM

[Ricard:]

A chartist's top ten. I'm a little surprised that a chartist wouldn't watch CNBC.

From a value perspective, I'd merge and replace #3, 5, 6, 7, and 8 with one maxim:

It's all about value - define value for yourself, and stick to it. If you find that there's nothing to buy that fits your definition, it's probably the time to consider selling. To help define value, read and understand Security Analysis by Ben Graham, and anything that Buffett writes.

Jan 01 02:56 PM

[johnthegeni...:]

These are good, common-sense rules to use anytime. Given the recent volatility, now is the time to re-commit ourselves to these rules.

I suspect that is the author's point.

N.B. rule #2 works best outside of trending markets. Try this during a secular bull and you may get hammered. It's good for now, though, as author indicates.

Jan 01 05:47 PM