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Three New Trading Rules You Should Be Following

By Jeff Clark
Tuesday, August 12, 2008

Now you know why there are a lot of alcoholics in the trading pits.
 
Even my teetotaling Aunt Edith would have taken a slug out of the cooking sherry bottle after last week's schizophrenic market action.
 
The Dow dropped 40 points on Monday, rallied 350 points over the next two days, declined 230 points on Thursday, and then exploded 300-points higher on Friday.
 
"You must be making a fortune," a friend e-mailed me on Sunday night. You see... it's often assumed traders love this type of volatility. But we don't.
 
It's tough to trade a choppy market.
 
Traders love a trending market. We prefer to spot an early developing trend, take a position, and then hold on to it for days, weeks, or even months before cashing in on our fortune.
 
Trading a choppy market – one that gaps higher or lower and reverses direction nearly every day – is a lot like trying to talk religion with a Presbyterian Rabbi in Jesuit school. Nothing makes any sense.
 
But that's the market environment we have now. And traders need to adjust.
 
We've made some changes in my trading newsletter, the S&A Short Report. We've tightened up our stop-loss parameters. We've narrowed our focus to specific types of trade setups. And we've reduced the profit potential we look for on any given trade.
 
In a trending market, I like to hold out for a double on any trade. We've had a lot of 100% winners over the years. Heck, even this year we're still averaging about one double each month.
 
But in a choppy market, traders have to be willing to accept something less than 100%. When an option position shoots up 50% or more in just a day or two, you have to be willing to cash in a few chips. Otherwise, the choppy market will take the gains away from you.
 
Don't get caught up trying to sell at the maximum potential profit. The market gods won't let you do that anyway... They'll laugh as they turn your winning trades into losers.
 
The best way to navigate a choppy market is to tighten up your profit expectations. Be willing to cash out a little quicker.
 
You won't sell at the absolute best possible price. But you'll do a heck of a lot better than the alcoholics in the trading pits.
 
Best regards and good trading,
 
Jeff Clark




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Market Notes
Country's largest casket maker, Hillenbrand, hits all-time high.
 
Clothing makes a comeback... True Religion, Warnaco Group, Urban Outfitters, New York & Co, and Ross Stores hit new highs.
 
Markets bullish on dollar, bearish on gold... Gold Fields, IAMGOLD, AngloGold, Harmony Gold, and Lihir Gold at new lows.
 
Earnings today... Hillenbrand, Icahn Enterprises, UBS.
Market Watch
Symbol Price
Change
52-Wk
S&P 500 1221.53 +1.3% +10.1%
Oil 37.77 +1.5% -2.8%
Gold 135.20 -0.1% +13.4%
Silver 27.93 +0.4% +47.9%
US-Dollar 80.67 -0.8% +8.1%
Euro 1.32 +0.6% -12.1%
Volatility 19.39 -9.2% -8.2%
Gold Stocks 564.53 +1.3% +10.6%
10-Year Yield 3.00 +1.4% -9.6%

World ETFs
Symbol Price
Change
52-Wk
USA 122.56 +1.3% +10.2%
Canada 30.44 +1.3% +13.8%
Russia 21.63 +2.3% +16.7%
India 37.73 +1.9% +20.0%
Israel 16.47 +0.9% +9.7%
Japan 10.58 +1.0% +7.4%
Singapore 13.88 +1.0% +19.2%
Taiwan 14.72 +1.6% +17.8%
S. Korea 56.56 +1.7% +22.8%
S. Africa 70.85 +3.9% +22.9%
China 45.06 +1.4% +0.1%
Lat.America 52.82 +1.4% +6.7%

Sector ETFs
Symbol Price
Change
52-Wk
Oil Service 136.18 +1.5% +14.8%
Big Pharma 64.13 +0.6% -3.3%
Internet 72.13 +0.7% +22.3%
Semis 16.03 +2.1% +28.9%
Utilities 31.21 +0.3% +1.6%
Defense 18.51 +1.3% +10.1%
Nanotech 9.99 +1.3% +0.0%
Alt. Energy 9.95 +1.4% -4.4%
Water 18.31 +1.1% +12.2%
Insurance 16.07 +1.2% +18.3%
Biotech 20.58 +1.1% +27.1%
Retail 19.65 +0.1% +28.4%
Software 24.59 +0.9% +24.1%
Big Tech 53.73 +1.0% +21.9%
Construction 12.99 +2.1% +13.3%
Media 13.57 +1.1% +25.0%
Consumer Svcs 67.26 +0.8% +23.3%
Financials 54.87 +2.4% +5.2%
Health Care 64.22 +0.7% +1.3%
Industrials 63.25 +1.6% +19.7%
Basic Mat 73.57 +1.6% +21.6%
Real Estate 55.24 +1.4% +23.8%
Transportation 91.17 +1.4% +25.6%
Telecom 22.48 +1.1% +17.1%