Yearning for the Good Old Days

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A common issue that traders have is the notion that taking light positions or moving to heavy cash is fine if you trade for extra income or as a hobby, but if you trade for a living then you simply cannot afford to do that. “How do you pay the bills while in heavy cash?” is a question I often see on the Twitter stream from traders who believe they must trade every single day. First and foremost, if you are a day trader then you are going to, naturally, be more active than I am. Beyond that, though, there is a hidden issue of bankroll management, which I will try and expound upon in another post. The bottom line is that you should never feel compelled to trade every single day, as no bet is often the best bet. The idea is not to trade for the sake of trading, but rather because you have a positive expectation.

As much as I would prefer to see a trending market with low volatility, rewarding stock picking and punishing one-to-one correlation macro traders, I can only assess the market that is actually in front of me. My sense throughout this autumn has been that we were not going to break out in the type of low volatility manner that we did back in the fall of 2010. Indeed, the violent price swings have persisted in the face of negative headlines, uncertainty, and fear out of Europe.

Today’s rally looks like it will finish largely intact, despite a modest afternoon giveback. However, I am not finding too many high quality swing trading setups via my screens and homework inside The PPT. My sense here is that we could easily bounce a day or two more, but there is more heavy lifting to be done in order to me to get aggressive. Patience has been the name of the game for swing traders in 2011, and, fittingly, that looks to be the way in which the year will conclude.