Steve Palmquist.Author of ‘The Timely Trades Letter’. ‘How to Take Money from the Markets’, and Money-Making Candlestick Patterns.
I get emails from traders who just want to focus on swing trading, intermediate term trades, stock trades, or ETF trades. I am not sure how they have decided which is best, since the results of these different techniques can vary with market conditions. It makes more sense to have techniques for stock and ETF trading and be able to make swing trades and intermediate term trades and then adjust the relative account sizes based on what is working in the current market conditions.
Most of the recent ETF selections in the Letter have triggered and moved into profitable positions, which is why I rotated additional funds to the ETF account as noted in previous Letters. I want to move funds into what is working in the current environment. When the market is sluggish swing trading stocks slows down for obvious reasons. However even in sluggish markets we see some of the ETFs moving, so I put more focus there until the market finished resting and decides to move again. When the market is strongly trending there is usually more bang for the buck in swing trading stocks than ETFs so I rotate funds into the swing trading account. This sounds obvious, but sometimes traders get fixated on just one technique and don’t look at the bigger picture.
Adapting our trading tools and techniques to the current market conditions is one of the keys to trading success. Guessing the markets next move, or using the same trading tool (technique) all the time, can lead to poor results. By having swing trading and ETF trading accounts I have the ability to focus on trading ETFs when the market is sluggish and swing trading is slow. I can then move more into swing trading, with less focus on ETFs, when the market is strongly trending again. By just using one tool traders will have periods when they sit in cash for awhile waiting for the market to move.
In the current environment we see energy and commodities moving strongly (check out the strong profits from the recent GLD, OIL, XLP and SLV ETF trades as an example) Since we are seeing strong action in the energy and commodity areas I will look at a couple of swing trades of stocks in these areas if they trigger on increasing volume. There are a number of interesting setups in energy and commodity stocks like the ones in HMY, NFG, CVX, APA, and DVN. Given the markets recent positive volume pattern, shorts are not attractive unless the market starts showing strong distribution
The net change for the last six sessions is less than a one point movement, this is a very tight base. Tight bases often lead to strong moves, so while this is a time to keep the powder dry as noted in previous Letters. It is also a time to get the watch lists up to date and ready for the move that is coming. When the market, or individual stocks, approach a resistance area it is usually a good idea to focus on protecting profits made during the last run. When the market approaches resistance it usually bases or retraces a bit. If most of the time the market stalls, or retraces, around resistance then it is best to lock in some profits; and let the market set up for the next move. If the market breaks above resistance we will still have our profits and can take new positions. If the market retraces from resistance then we still have our profits, and will have avoided potential losses. If you hold when the market approaches resistance you risk losses if the market pulls back. For more market analysis and trading setups click here.