Trading Devoid of the Thought Process

With every major index rolling around like a BB in a boxcar (SPY), (QQQ), (IWM), the day to day call has become almost impossible.

The Mad Hedge Market Timing Index is now showing “Extreme Fear” with a reading of 20, never a good time to initiate a new short.

What’s a trader to do here?

Invest purely on the basis of momentum?

That risks buying the top tick in the entire move and looking like a complete mug to your clients, your boss, your coworkers, and your wife.

Maybe it’s time to take a long cruise at let your performance flat line at an all-time high?

But then, mid-March is a little early to call it a year, even though you may be up double digits.

The exit of institutional money to trading in in-house dark pools, the concentration of trading into single sector exchange traded funds (ETF’s), and the departure of the traditional individual investor, are all exaggerating these moves.

It doesn’t help that stock markets are sitting just short of all-time highs.

You could run off and trade something else besides stocks. That’s easier said than done, as virtually all other asset classes have become untradeable.

Bonds (TLT) have just entered a new 30-year bear market.

Some commodities (COPX) are now trading at double their fall lows.

Precious metals (GLD), (SLV) seem to be hesitating here.

What’s a poor trader to do?

Take up the action in collectable Beanie Babies? Rare French postage stamps? Crypto-currencies? Rare vintage Madeira’s?

There are only two ways to deal with a market like this. Turn off the TV, cancel your newswire feeds, quit reading research, and just look at your screens.

Buy the low numbers and sell the high ones.

It is no more complicated than that.

Don’t confuse matters with the thought process. The markets are now so illogical you will only muddy the waters. A brilliant move in one hour may look like a disaster in the next.

The other method is to become boring. Just find the cheapest, low fee index fund you can find, like one of Vanguard’s, buy it, and stuff it under your mattress.

I’m pretty confident that it will be up 10% by the end of the year.

That means you will probably beat most hedge managers out there, as you would have done for the past nine consecutive years.

Try to earn more than 10% trading in these choppy markets, and you could end up losing 10%, or 100%.

As for me, I am going to stick with trading. At least I’ll be there when it turns easy again, which has to be soon, and I’ll make a hell of a lot more than 10%.

And was never very good at the “boring” thing.