The Street goes sky high on news of a deal on the debt crisis in Europe, and the DOW Jones returns to early August 2011 levels – but its time to get out (in my unprofessional opinion.) I like people who back what they say with action so let me disclose to you that as of close of the market, I am in 100% cash in my portfolio. I was lucky enough to make a considerable gain today (Had DOW (+8.22%), X (+11.92), and AMD (8.73%) leveraged options in my portfolio) – it was a good day.
Can I say for certain that the DOW Jones isn’t going up anymore? Of course not, but let me sell you why I think it is time to sell.
I’ve been trading approximately 13 years (I am 25 years old) and I have learned something very important – You need to have a reason for how and why you trade. I actually remembering reading a case study for a foreign exchange rate firm that told their employees – if you cannot tell me upon request your reasons for executing your trades, you’re fired. They interviewed several of the employees and asked them – What are your reasons for buying or selling. Some pointed to fundamentals, ratios, and charts – where they pieced together their logic. One woman said “because the weather is terrible today” and another man said “because my neighbor sold his house” (No joke)
What’s the point of this? By having reason or logical process to deciding your trading, you develop a pattern – that you can make adjustments to, to make yourself profitable. Let’s say you are the worst trader in the world and that 80% of the time you are wrong. Don’t change a thing and simply reverse your positions (short instead of buy, buy instead of short) – you should be right 80% of the time now. I’m aware there is the “observer effect” which says your decision making can changed if you are actively monitoring or observing or being observed, but you are missing the point. You need to set a benchmark of your trading style.
My goal and style: To act on something I believe is more probable than not, even if it is a slight margin. I believe it is more probable than not that the Dow Jones will not go much higher than $12,208.55 by the end of the year. If you had to ask me a % chance, I would say its 60% chance of the market adjusting downward / 40% chance of the market going sky high from here (in the near future). You can never be right all of the time – you are just shooting for more often right than wrong. Do you think there is a better chance the market will sky rocket? In the near-future – I don’t. I have to be confident that at some point in my life it will be much higher, but for the short-term – I’m going to try to avoid some potential pain.
But that’s my opinion.
Disclaimer: Always consult a professional for all investment advice. This is an opinion and should not be the basis for a decision for investment.