All In All You’re Just Another Brick in the Base

[youtube:http://www.youtube.com/watch?v=M_bvT-DGcWw 550 412]

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Bull market corrections should be celebrated and embraced by swing traders in particular, since it is only through this temporary cleansing process that we see excellent, high probability longer-term trades emerge again to commence the next leg higher. In fact, that very rinse/repeat concept was one of the driving forces behind my super tight approach to this market over the past two months. After riding the trend higher since last September, the issue was not whether we were going to correct sharply after drifting higher well into 2011, but rather the test would be whether your greed would blind you from that inevitability.

For those who were caught heavily long up at 1344 on the S&P 500, the temptation is to now force trades during this correction. Inside the casino, this is know as “chasing,” where you are instantaneously trying to recoup dramatic losses that you just suffered at the blackjack table, for example. However, this usually leads to further losses and even more chasing. If you are wondering why so many traders and gamblers go broke or lose so much capital that they can no longer survive in the stock market or at the poker table, I just outlined pretty much all you need to know–Losses beget more losses, which usually leads to desperation and any semblance of discipline being tossed out the car window like a piece of damning evidence with the police chasing you down.

Bases are built during corrections, and patterns are filled out. If you have patience to slowly build positions for the long-term, then you will start to see some bargains during this correction, if you have not already. Even if you do not have the Warren Buffett “buy and hold forever” mentality, the big money will still be made from your longer-term swing trades, lasting several weeks to months, rather than holding for just a day or two.

Hence, forcing too many trades during this correction may very well prove to be just as big of a mistake as loading up the truck with longs last month. The key is to keep a big picture perspective and understand that trying to aggressively swing trade here amounts to being just another brick in the base.

Below, the weekly charts of GS JPM and MA all illustrate patterns that are likely to resolve sharply higher, but not before a few more traders trying to push their luck are punished.

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