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    Thursday, May 22, 2008

    Ring the register

    If yesterday's move occurred next Tuesday, after the holiday, it probably would be enough to bust the market for months. It did not, however, so we'll have to let stocks meander while the big guys head for vacation. The interesting thing about sharp moves is that while exciting, they rarely last. With that in mind, my money's in the bank. I realize I'll have to continue to pick my spots carefully, rather than "sell in May and go away." Although I'm "flat" stocks at the moment, my bias towards shorting anything paper is very much intact. I am flexible and will short rallies when they occur, so I'll be either neutral or short stocks, depending on when you visit the site. Check the positions page each time you stop by, as I'll keep it current. (Twitter 'ticker' has been going down a lot lately).

    You might ask how I would respond if stocks crashed overnight, and I was flat, after taking profits the day before? Naturally, I'd rather be involved, but it's my view that I must make money consistently. Betting on "the crash" can only be correct one time, leaving lots of money on the table between now and then. So, in the long run, I'm not sure catching the crash is much more profitable than booking profits regularly, but I am sure it's much more frustrating to try. I feel it's best to put surprise headlines in my favor, by staying on the side of the bigger trend (200 MA). And don't be surprised if this method has me involved, if and when the crash finally does materialize. In the meantime, I'll trade the same direction (short stocks), taking advantage of sharp moves to enter/exit within the context of the longer term trend. Your plan cannot be perfect, and you'll have to draw the line somewhere.

    Regarding the next couple days, this is a great time to review and plan for next week. I'll spend most of my day reading, charting (or cheating by using some others' fine work like Slope of Hope, and TraderMike) and reviewing recent trades. I've been disciplined and have a personal trading challenge I'm working on. Today I'll take time to check progress on my goal (not monetary). I might get the chance to enter a short trade, or even write an afternoon post! Lastly, pick up your favorite book on trading and reread the highlights you've made in the past, just to see how you've grown.

    Keep an eye on the specific instruments I trade as I'm making slight adjustments. For example, large cap stocks have been the easier trade, rather than small caps, so I'll trade the S&P500 more than the Russell 2000. I expect I'll be trading more futures contracts than etfs, as I prepare for a more significant decline. I intend to add more commodities on pullbacks, if it ever happens! I'll do my best to stay transparent.

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