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Here is the problem I'm having and it's killing me. It has to do with the overall market. I would like to know how real traders handle it. You're either in a position or setting up your chart/position and the market makes either a small or large move. I never realized how much almost every stock moves in synch with the overall market (Dow, S & P, etc.)! It seems to be tick by tick. If you superimpose a chart of the Dow over almost any stock they take almost the same pattern. Not exact, but the same swings.
So I'm in a position and everything is going along fine and whoosh...the overall market just kills me. What do you guys do when a) you're setting up a trade and b) you're in a position? Is there an indicator you use? Do you get out? Do you avoid a trade that you may have spent a lot of time setting up? I think you see where I'm coming from.
Thanks in advance.
Can you help answer these questions from other members on NexusFi?
It is quite difficult to give an answer to this post.
First of all, it is true that the overall market has an impact on price of individual stocks. Stock indices typically react to macro economic information, it is only during the earnings annoucements that the focus shifts to single stocks.
When trading stocks you look for alpha. Alpha is composed of the overall market performance and the relative performance of your stock. If you are not interested in following macro economic information and analyse the overall market you can trade pairs based on the information available on individual companies. However, if you just trade individual stocks, you need to monitor both, your stock and the environment.
You should know the topics of the day, scheduled news releases, the treasury auctions schedules and monitor the overall market by having a chart open, may be look at the NYSE TICK or the TRIN, have a look at some sentiment indicators such as the put/call ratio and apply a trend filter calculated from the indices to your stocks.
Also you would want to screen stocks with a scanner and select the ones with the highest probabiity for a successful trade.
In short you need a method with a proven edge, and you do not sound yet as if you have any proven edge.
The path to success is learning the craft, looking for a mentor with a proven record and exercise your execution skills on your mind. It is a long way to go.
To avoid this situation, I trade the ETF stock indexes like SSO (SPY) and IWM and maybe the reverse ETFs like SDS and TWM. So there are no surprises from the market in general.
I only swing trade stocks, or trade around earnings/major news.
I find it better to focus on the broader market by trading futures. Keep an eye on the indices, currencies, commodities and treasuries, and you'll get a handle on the broader picture soon enough.
Good point cw30000. The overall market doesn't "kill" you Craigh, you did that yourself. Perhaps by trading a too short time frame. If the market "just kills you", aren't you taking too much risk? Should one trade be able to "kill" you?
Or do you mean that the trade got "killed" because you see the overall market moving, and then hesitate even tough the chart of the individual stock gives no reason to? Then try to research your strategy more, so that you know that, if you get your objective setup, on average you'll make a profit, regardless what the latest tick in a stock index is. Or just stop watching the stock indices if your setup doesn't require that.
Number one, - you have to decide where your "comfort zone" is. From your post I'd say you don't have one. While you should indeed read/listen to others who have "been there/done that" - you can't trade the same as another individual, - simply doesn't work. - When most folks first think they want to trade, they're attracted to the short-term, ... and usually get burned pretty well. - Step back, start off by "paper trading" - being TOTALLY honest with yourself on everything you've done, including commissions. - Read all you can about the market in general and trading. Google "stock trading" or "stock market". - Trading is NOT something you pick up overnight, - expect to spend a LOT of time and frankly money to get started, - kinda like tuition. - Suggestion, avoid the day trading stuff, especially with your experience, ... good luck.
I went through that same issue. Eventually I began to solve the problem by realizing that on the time frame that I'm trading which is 10 to 30 minutes. Most stocks are going to follow the rest of the market. "A rising tide lifts all boats" Individual stocks will diverge a bit from the overall market based on eanings and other newsworthy events that can specifically effect those stocks. But, the day to day trading that takes place outside of those events will by and large mirror the rest of the market. The best way I've found is to choose index ETF's like spy so you can minimize the complexity of your market monitoring. you don't need to do a lot of screening or scanning and you can focus on only one or two markets and get to know them well. It's a lot less work, less stressful, less frustrating and ultimately more profitable.
Like a couple of the other posters here said, if you have a method/strategy that has a proven statistical edge and if you're using sound risk management rules it really doesn't matter what is the cause of market movement. The method/strategy you're using should be robust enough to work in most markets regardless of the ultimate cause of the markets movement.
I went through the same thing and when I switched to markets that reflected broader sentiment like spy my trading became a lot less work and I had a lot less to watch. Futures like YM are also good if you want a little bit more leverage.
good luck!
"I've missed more than 9,000 shots in my career. I've lost almost 300 games. 26 times, I've been trusted to take the game-winning shot and missed. I've failed over and over and over again in my life. And that is why I succeed."
- Michael Jordan, 5-Time NBA Most Valuable Player, 6-Time NBA Champion
