Defense Wins Championships

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The bulls are giving it a go here, as we are well off this morning’s lows. However, the market is still clearly down and is currently coming to terms with the Egypt lows from late January, of around 1275 on the S&P 500. While you may be hearing the sounds of heavily long traders breathing a sigh of relief right now because we did not crash, you should have been playing great defense over the past few sessions. Although the situation in Japan in a very fluid one, and no one could have predicted the initial earthquake (except Dennis Gartman), simply put the sloppy and weakening price action over the past few weeks should have put you in mostly cash, from a swing trading perspective.

There is a time and a place for everything, but going full pedal to the medal all of the time as a trader is long-term money losing strategy. As much as you might love to trade and feel compelled to perpetually “give action,” you might take a different approach and acknowledge your love for trading so much that you do the things necessary to see to your survival in this business, rather than placing yourself on the edge of the cliff too often to sustain your trading account.

The good news from these recent sell-offs is that Mr. Market is cleansing the arrogant, complacent, and patronizing tone of recent dip-buyers about how you need to be in this game at all times in order to win. The reality is that playing great defense in your portfolio is what will ultimately keep you in the game, so that down the road you can eventually go on the offensive when you find a better spot. Anyone who claims that making money in any form of gambling is simple and easy is selling you a bill of goods of which you should never take delivery.