Possibly back by end of August

Due to circumstances beyond ur control, we closed out all our trades and longer term holdings this week. While this was not due to our opinion about the market, the market does have to be observed at all times, watching for the inevitable bearish turn.

Bearish turns do occur, and there is one in the future, this is guaranteed. While we know a bearish turn will eventually occur, we don't know when or how long or deep it lasts. 

"Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves." - Peter Lynch

Those of us that have been in the market a while read Mr. Lynch's quote above and shake our heads in agreement. There's a fine line between being a perma-bull, or ostrich with your head stuck in sand, and trying to avoid being alarmist and overreacting to any down day in the market. 

Clearly defined objectives:

It's pretty hard to get where you are going if you don't know where your destination is. Are you holding a trade or a long term investment? How long is long-term? While heeding Mr Lynch's words, we have to know that last Friday's red ink could have been the start of something more. While we also acknowledge it could have been the start of another round of buying the dip. If you consider a holding long term, are you prepared to ride it down a substantial amount and for a substantial period? Corrections and bear markets can be sharp and last years. 

If you are not comfortable riding out down markets, then you have to be prepared to close out holdings when the market suggests to you, this or these trades are not working. This is the sign traders have to watch for, but not act prematurely because of a couple of down days in the market. 

I've heard Day Trader Rockstar say that he might be a little slow to cash his longs in when red starts to appear, and thus lose a little more than he'd like. However, he then points out that by living by Peter Lynch's credo, he avoided so many losses by not constantly over reacting to every down day and trying to stay ahead of the next correction. If you look at our trading record of the last month, you see consecutive weeks of gains, and in good to rising markets, you can and should post many weeks, months, and years of profitable trades by not overreacting and by buying dips. So when the real correction comes, if you lost an extra ten percent, or so, you are still far ahead in the big picture because of the many weeks of gains your levelheadedness allowed for. 

Sometimes a short ETF such as SDS, added to a basket of longs provides sufficient hedge when the market road gets bumpy. Keep buying power on hand, or as we say, keep powder dry, to hedge longs as a first defense. If you find your shorts profitable enough to consider defensively closing your longs, that is the next move, and at that point, you are holding only shorts and cash. 

We will get into more detail about our trading strategy, if we do get back in the market within the next couple weeks, in our next post.

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