Do you ever find yourself on a trading cold streak? Every trade you make looks like a perfect setup and then just fails to move anywhere but down.
This happens to everyone and today I have a great piece of advice that will help you regain your footing in the market and keep your account in the black: take a break from trading! The strategy is simple really, but it creates a lot of opportunity that is overlooked.
What happened?
The first thing that I thought about when I got in my first rough stretch was “what am I doing wrong?” Chances are, if you haven’t changed anything, you aren’t doing anything wrong on purpose. There are, however, some things that could affect you without you even knowing:
- As we take multiple positions (usually all long or short), it can be very easy to lean in that direction and slowly build up a bias in our analysis.
- Personally, I have had a lot of trouble lately believing that the market could rally with all that is going on with the Obama administration. This has caused me to be overly bearish and just label the rally rather than participate.
- When we find ourselves on a hot streak, we can get too confident and throw money in stocks as we just expect them to do as we please.
The Strategy
Taking a break from trading can be very hard for some people, but remember that we must take all things in moderation. Usually, the best amount of time to break for is around a month. Start by selling your stocks you own to clean your slate.
Once you have no obligations to the market, take a couple days and ignore the market completely. Don’t worry with seeing what happened. Don’t watch CNBC or Fox Business. Just focus on relaxing and enjoying the wonderful gift we call life.
After several days, casually begin to see what’s happening in the market. Pull up a chart and do a little analysis. Once you have gotten an idea of what has been going on (which probably isn’t much), leave things at that and move on by picking up your favorite investing book to catch up on some of the basics.
The idea here is to reconnect with some of the strategies that you started off using with success, but then either forgot about or thought they weren’t necessary. I usually find a good bit of techniques that I had forgotten about or never learned completely.
Finish off your break by reading around on the internet to see how other people are trading and their stance on the market. You should also begin to scan the market for good picks about a week before you start trading. This will help you get an objective outlook and you should begin to trade with more accuracy and efficiency.
Notes
The strategy I defined for you above is not going to be the best for everyone. It is up to you to find out what really works for you. Also, when I talk about selling your stocks, this is for traders that are very liquid in their accounts. I’m not trying to tell you to go and sell all your retirement investments.
I think that when you try this, you will be amazed at the amount of stress it relieves. If you already feel pretty stress-free about the market, just wait until you have no obligations to it!
What kind of strategy to do you use to cool off in the market?
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