It’s Okay to Take a Break From Trading

I meant to write this article before I left on my recent ski vacation and the original intent was to show how I managed my portfolio heading into a period where I was going to be away from the markets. However, I really think many of these same concepts also apply during times when the market is vulnerable and I feel that the risk is not worth the reward to my portfolio. I feel this is one of those times in the markets where I’m better off not pressing and simply waiting for better conditions. The market has been fantastic over the past few months and I have been finding myself starting to feel more and more bearish. Quite frankly, it has been too easy and the majority of traders are too complacent right now. Every time the market dips, Joe Trader rushes in and buys AAPL and is rewarded. There are also other warnings like the recent increase in distribution days, decreasing participation, damage to sectors such as the transports, and the fact that the S&P500 has spent the most time under its 20-day moving average in months. All of these are warning signs and it all adds up to increased caution.

However, its hard to simply walk away from this market. It has proven to be quite resilient and if you have been waiting in cash you are undoubtedly frustrated. Well, much like when you head out on vacation, it is possible to stay exposed to the markets while greatly reducing your risk. The first thing you need to do is refrain from doing something stupid.

  • check for earnings or scheduled news:  Don’t take unnecessary chances or risks. The current market is punishing any disappointing news and if you are a short term trader, you probably should simply avoid earnings. If you are a longer term trader at least consider reducing position size or using options to complement your position.
  • set stops: If you will be away from the markets just set your GTC (Good Till Canceled) stop and be done with it. If you are worried about the markets, decide in advance where you want to exit, either to protect profits or to abandon a trade. Remember, it doesn’t have to be all or none, it is perfectly acceptable to scale out a portion to lock in profits and protect your mental capital as well.

After getting the obvious stuff out of the way:

  • get rid of anything that is stagnant: It doesn’t make sense to clean out your portfolio with no regard to recent performance every time the markets have a distribution day, but if you have a stock that has been stagnant and you will either be away or are worried about the markets, simply get rid of it. Try to keep your best performers, or stocks that seem to be moving in your favor.
  • reduce position size: Another way to remain exposed without exerting too much anguish is to simply reduce your position size. Certainly do not double down or oversize your position when you are not in a position of strength. It all goes back to protecting your mindset. Trading is a mental game and keeping your confidence is more important than the outside chance at a few bucks.

There are of course more things you can do, but a lot also depends on your experience level and obviously trading skills. Getting back to preparing for a vacation or being away from the markets; If you’ve been trading successfully for a while, you can handle maintaining more open positions than a new trader. For beginning or struggling traders, you probably should wipe the slate clean if you will be on vacation. The markets will be there when you get back and there is no reason to always be in the game. The last thing you want is your kid to remember you spending all vacation glued to your iphone and being anguished over a position that has moved against you. During uncertain times, the same rules apply, except that you are around to watch and must show self restraint as you wait for your edge to appear.

Let me know if you have any techniques you use for dealing with vacation trading or when you simply take a break from trading.

Good Trading,

Joey

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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