We have all heard the phrase, “You’re damned if you do and damned if you don’t”.  If you are faced with two options and Option 1 means you would lose $500 and Option 2 would result in a $1,000 loss, one might think to take Option1 because it is the lesser of two evils.  But there is a third option and that is to take no action.  Doing nothing, while it gives you no chance to gain in some way, it also means you cannot lose.  There is no downside.

Some may take to heart the saying nothing ventured, nothing gained.  But you want to have as many signals going for you as possible.  You don’t want to play hunches.  A little knowledge is dangerous.  Leave the gambling mentality for your trip to the casino.  When it comes to swing trading you want to be as objective as possible and reduce or even eliminate subjectivity.  At twopercentgoal.com we have 10 Essential Rules for stock picking.  Nine out of ten is not good enough.  You must use all 10.

One of my ten essential rules is that when buying a stock, the 50-day moving average must be above the 200-day moving average.  No exceptions. This shows that the stock is in a bullish mode.   When shorting, all rules must be reversed meaning the 50-day moving average must be below the 200-day moving average.  Again, no exceptions.  As of this writing (November 4, 2024) the MACD of the Dow Jones and all its subsectors is pointing downward. Overall, we are short term bearish on the markets.  We are looking for shorting opportunities.  Unfortunately, for shorting, the Dow has been bullish for the last year and most stocks show its 50-day average above its 200-day average.  That means that shorting opportunities are scarce.  So be it.

There is risk in swing trading, and while you want to eliminate risk, which is impossible, you want to minimize it as much as possible.  When swing trading you need to look at everything from a macro and micro perspective.  When shorting, you want the markets overall to be soft and you want the individual stock to show weakness as well.  The 50-day average below its 200-day average is clearly a weak signal.  If you cannot find a stock that meets this criterion, it is better to be on the sidelines then to compromise your principles.

Patience is a virtue.  Let the markets come to you.  Do not force a trade because most of the signals are met.  You want all the signals to be met.  This gives you more confidence going forward.  Cutting corners means you are compromising your principles.  It means you are watering down your program.  There are times to play offense and times to play defense.  If all signals are not met, play defense and stay on the sidelines until the situation changes, and it will.  Doing nothing is sometimes the most profitable course of action.

Go to twopercentgoal.com and sign up for a free 30-day trial of daily emails of stocks poised for a two percent gain within a week.  

Cheers,

Al