Frustrated? Confused? Having a tough time? No, it’s not a return trip to High School, it’s the market action since early summer! I remember when the Fukishima disaster happened in March the tape became very difficult, but that was just a warm up.

Long set ups continue to fail. Short set ups need a constant eye in the shadow of intervention headlines. Leadership is absent as market action devolves into a random mess of noise. It’s dangerous out there, and the market wants your money.  Even the most experienced pros are having a rough go of things.  In the face of all that what I am about to say may seem insane.

You should be trading this market.

Now in a bit I will go over some disclaimers about how you want to do this, but first hear me out.

This market is very difficult and I have never seen the kind of time compression of moves as I have over the past two months. Sentiment is flying to extremes in a matter of days. As a swing trader this makes holding positions over days very uncomfortable. So why am I not saying to go all into cash and just skip it all? Because this environment is a perfect opportunity for one to get a real honest look at how they are performing. If you are not adaptable you are not going to be able to navigate the current mess. You do want to be able to change, right?

In a market like the run from the lows in 2010 you may not get a real read on how you will trade in a challenging market. Long moves up are very forgiving. Now almost nothing is forgiven. How disciplined you are and how you stick to rules should be crystal clear to anyone trading by now.

Now I am not saying it’s a great time to put all of your capital out there and see what happens. What I am saying is that I believe you should be out there working in this market, it’s hopefully a rare mix of difficult market conditions. If you can trust your system after being battle tested like this,you are going to be that much more confident going forward. Things will change, they will improve. Someday.

Get smaller. Use smaller sized positions. Be very aware of where sentiment is. The PPT Hybrid score is a valuable tool for helping the decision process of when and how to get in and out of spots. I was a huge proponent for a move higher in October as I figured performance chasing would see stocks moving higher. I also figured a Euro zone solution would have been in place long before now. One of my best ideas for a fall rally was the stock CVLT. I was using this name as a proxy for risk and it was running well until the end of October:

This one has now broken a good trendline and looks in a bit of trouble.  Clearly my call for a fall rally has been punished by a cruel November so I am adapting to the reality on the ground, not just sticking to a call that has gone sour.

If you do not have any skin in the game, I believe you will not work as hard at reading the tape. It’s easy to say wait until conditions improve, but by the time they do plenty of the best set ups may have left the barn. If you are working in this market you will be watching where money is going, what names are getting interest, and when internals are getting better.  Obviously this piece is written from the long trade perspective. I almost never short (Josh Brown has a good piece on it here) because it does not fit my style well.

I don’t think I have written some gospel here, I think most readers know all this but I thought getting it out there was worth the effort. I also wanted to contribute to the Blogger Network because I think it’s a great opportunity for anyone that has ever wanted to have their voice heard.

Have a good night.

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