I am writing this blog post to offer words of encouragement and to hopefully help people learn from my past mistakes. Most people don’t like to admit their mistakes because we all want to pound our chest and let the world know how great we’re doing. I have no problem admitting that I used to struggle tremendously in corrective markets JUST LIKE THE ONE WE’RE IN NOW, until I made one simple adjustment.
I’ve been trading for 19 years. For the first 12 years, I would do very well during market uptrends, only to give back a good deal of profits during the corrections. The most frustrating part was that I would identify the market warning signs, know it was a bad time to be trading, and STILL force trades in an unhealthy market. I did this over and over and over until I made that one adjustment: I SIMPLY DECIDED TO SIT OUT.
Many people tell me there are other strategies to use during corrective markets besides moving to cash. For example, you can short, use option strategies, etc. As I always say: DO WHAT WORKS FOR YOU. I prefer to sit out mainly to protect my confidence so I don’t get tossed around in choppy markets. I also need a mental break once in a while so I can come back fresh and ready for the next uptrend. Whatever you decide, the best advice is to keep things light and reduce your position size. In other words, save your money for when market conditions improve.
Since the beginning of the year, I have maintained a 90-100% cash position for my clients. Besides protecting their capital, I have also protected my confidence. I currently have more energy and enthusiasm than ever. Why? Because I am certain that we will have another strong uptrend and I will identify the new leaders and trade them aggressively. The key right now is to stay disciplined, to protect capital, and to NOT force trades.
If you survived this correction so far, I applaud you and congratulate you for your discipline. If you struggled recently, don’t get discouraged! Learn from your mistakes so you can correct them in the future. A strong new uptrend is coming in the future. Just be patient and save your money for it!
I can be reached at: jfahmy@zorcapital.com
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