Summers (for trading purposes, traditionally defined as the beginning of June to Labor Day Weekend) have been notorious for being slow when it comes to trading. Traders have sold in May and have long gone away. But that doesn’t mean you still can’t be profitable. While it may get really tough mentally to deal with what seems like watching paint dry day in and day out, I see it as an opportunity to challenge yourself to test your discipline and patience to wait for only the best opportunities to jump and protect your account from needless losses due to forced trades. If you are able to survive the summer and remain consistently profitable anyways, it’s a true testament to your abilities as a trader, given the extra ounce of will power needed to do it.
Here’s a little guide I put together to help you survive the rest of the summer, should the action not pick up.
1) Only Trade Grade A+ Setups
Given that we have lower margin for error due to lack of opportunities in a slower market, we need to focus on only the best setups only. Over committing yourself to an inferior setup will put you in a hole that you will be unlikely able to dig yourself out of due to lack of higher quality plays. Unless you’ve mastered controlling your emotions, this will probably lead to a downward spiral of amplified that includes: Fear of Missing Out (FOMO), revenge trading, and forcing trades.
2) Recognize When the Best Opportunities Have Come and Gone for the Day and Walk Away
This ties in with number 1. You must be very objective in assessing when the best plays are over for the day and leave. This also means that even if you missed the sole golden grade A+ setup for the day, the correct move is to still walk away as you will most likely be tempted to find a lower quality, make up trade to make up for you missing the higher quality, easier trade. Things like significant volume drop offs across most of the stocks that were in play on the day and/or sideways, choppy, or grindy charts are a good sign you should retire for the day with whatever you have, no matter how much or how little.
3) Be OKAY with Smaller Profits
Understanding that the market will have less opportunities means we need to be realistic about the profit potential. There’s no shame in lowering the bar especially if it helps control our greed, which is one of the biggest things that kills traders. Size down your positions and/or consider taking profits quicker to protect youself before the action gets frustrating to deal with. There’s no place for an ego when it comes to trading and if you come to a dead slow summer market thinking you can match your gains from a much more active month with ample amounts of higher quality plays, you’re setting yourself up for failure. It’s like attempting to go fishing when it’s not fishing season, you’re probably not going to catch anything.
4) Don’t be Afraid to NOT Make a Trade and Take Days off if Needed
If there’s a day where there’s absolutely no good setups, there’s no shame in not making a single trade. Again you’re always better off not putting yourself in a hole and at risk of committing several mental errors to compound your losses even more. Remember, any positive number (and zero) is larger than any negative number.
Feel free to use the summer and do what a lot of traders are obviously doing: taking a vacation! I would go as far as deliberating planning activities in the middle of the trading day so you won’t stick around during the lull hours and doing something stupid to give back your hard earned profits from the morning or amplifying your losses. By doing this, you’re taking the preventive measure of getting yourself away from the computer and away from the temptation to push buttons for the sake of pushing buttons.
Stay safe guys! The better opportunities will come. We just have to be very patient and wait for the right moment to strike. In the meantime, we have to stick it out through the thick and thin.
Tired of never having shares to short? Does your broker just plain suck?Madaz recommends Centerpoint Securities as the preferred broker.
Tired of getting late alerts and getting dumped on by your guru?Madaz recommends Trade-Ideas as the preferred stock scanner.
Are you often missing big moves because it takes you forever to find out the catalyst?Madaz recommends Benzinga Pro as the preferred Live News Feed service.
Affiliate Disclosure: I know what you're thinking. Madaz, ya sneaky bastard, trying to sneak in some affiliate links. Any compensation I may receive from this will pay for big macs on days where the market isn't feeling so charitable. For a more complete version of this mumbo jumbo, please click here.