This past week the Dow set an all-time high. It closed Thursday at 48,704. On Friday it had an intra-day high of 48,886 before dropping and ending the week down 245 points from Thursday’s close. So the 64-thousand-dollar question is this: should you sell or buy more? I will give you a vague, politically correct answer. It depends. You must do a gut check and be brutally honest with yourself. What are your goals? What are your risk tolerances and what is your timeline? Those are the questions you need to answer.
Do not get caught up in the hype. If you are not in the market, why not? What has been stopping you? If you have been standing on the sideline waiting for the time to be just right, you are setting yourself up for failure. When it comes to the market, buy low and sell high. Yet quite often people do the opposite. They see the market is booming and that people are making money, so they get in for all the wrong reasons. To stay ahead of the crowd, you must stay away from the crowd. You must have a specific goal. Vague goals produce vague results. From there set a plan which includes your goals, risk tolerances and timelines. Fail to plan, plan to fail.
I have used a number of cliches in the last paragraph but only because it suits the moment. If you follow that roadmap, it does not matter what everyone else is doing. Have the courage of your convictions and act accordingly. If you have met your goals and you are within your timeline, selling and taking profits may be in order. If you entered a position following an IPO, the fundamentals are strong and your timeline is five years away, buying more might be prudent. And if you are a swing trade like me, you have already taken your profits, and you may be waiting to short the market. It all depends on your goals, and it does not matter what the markets are doing and what everyone else is saying.
At twopercentgoal.com our goals follow the SMART acronym. Those goals are specific, measurable, attainable, relevant and timely. We are swing traders, not day traders. The difference between the two is the timeline. A true day trader does his work intra-day. A swing trader has a slightly longer time horizon usually between three days and three weeks. One week is our sweet spot. Our goal is very specific, to make 2 percent per week. If done consistently, that aligns with our bigger goal which is to make a 100% return within a year. That is the ultimate goal.
How do we do it? By using a number of technical analysis tools that have been used and proven effective for years. They include the Relative Strength Index (RSI), the moving average convergence divergence (MACD), the 50-day/200-day moving averages, the on-balance volume, and the stochastic oscillator. When all these signals are saying the same thing, there is a strong case to be made for buying or selling short. To see how we put it together, watch this YouTube video:
Does this work 100% of the time? Absolutely not. But when you have a solid goal with a sound plan you can move forward with confidence and the crowd be damned. Good luck with your investments.