Dan Zanger has a tremendous quote in the book “Momentum Masters” regarding trading during a choppy period in the markets:
“Observe and live in the firestorm of the market for a few dozen years, and you’ll learn not to stick your hand in the fire when you see it. I got burned too many times to forget what “chop and slop” truly means, whether long or short. Market behavior follows distinct repetitive patterns that teach clear lessons, so when you see a market starting to act badly, you’ve learned instinctively that it’s time to back off for the required weeks or months. During that time you don’t go on vacation and turn your back on the market; you still need to be watching the market every day so you’ll know when it has calmed down and is back to normal. Diligence even during a choppy market is part of good timing.”
- When the market turns into a choppy mess, which is the case currently, Dan talks about simply stepping away from the fire instead of trying to participate in it. He mentions being long or short in this type of environment can both lead to losses, since the market is not trending but simply in a volatile mess.
- The best way to deal with a bad market is to back off, and when he mentions the “required weeks or months” what he is saying is that corrections take place through price and time. Every correction has a magnitude and a duration and the duration part can last a lot longer than people want to admit. Especially people that are itching to trade or require constant “action”.
- He mentions you can still watch the market every day even if you aren’t participating. It’s a good time to keep working on your watchlist, take note of stocks and sectors holding up well under pressure. This allows you to have a plan of attack when the market finally turns. You can also go back and study previous periods in the markets and study past big winning stocks.
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