Staying nimble in the markets is one of the standard stock trading basics. Due to the speed that information moves today, the transmittal of both good and bad information makes it imperative as investors or traders that we are ready for almost anything at any time. We need to be able to position ourselves in the best possible way so that we do not get hurt when unexpected information is presented but also so that we can take advantage of it when it does occur.
This is a great thing to say and to believe but it is also not always the easiest thing for many people to do but what can we can do is plan for or position ourselves properly for the information that that we do know will come out. There is so much that happens around us that we cannot control, which is largely government and market based, we need to concentrate on what we can control which of course is largely how we react to all of it. Regardless of what our often times dysfunctional government actually does we need to prepare ourselves and be ready for the most likely outcomes of their decisions. We cannot control our tax rates but we can be diligent in our tax planning. We cannot control how the markets will react to the resolution of our economic challenges but we can position our investments and our trades so that we do not get hurt by whatever decision is made. We cannot control interest rates or inflation or the budget deficit but we can be proactive in making sure that we are in enough of an offensive position so that when a decision is made we can take advantage of market moves that will occur.
All markets go up and all markets go down but they rarely go straight up or straight down for any great length of time. I believe that knowing what the outcomes of the economic situations will be that are at hand at any given time is less important than the simple knowledge that there are decisions that are imminent. We don’t need to know what the decisions will be we just need to know that the markets will move when the decisions are made so we can position ourselves ahead of time to take advantage of whatever moves occur. We know that investors and traders are very emotional and we also know that the information that we currently have is already baked into the pricing of the markets so whatever decision is made in Washington will very likely result in a correction of some type. We do not know if the correction will be up or down nor do we know the severity of the correction and we don’t necessarily need to know any of this we just need to know that a correction is likely. By knowing this we can put ourselves in the best possible position to take advantage of the coming move. The fiscal cliff issue is or was just the issue of the day, there have been, there are now and there is likely to be constant issues that come up on a regular basis that will be the new issue of the day. We don’t have to be prognosticators we just need to have good planning to counteract the market moves so we do not get hurt and possibly so we can be aggressive and take advantage of the moves that occur.
The obvious question that comes up is exactly how do we do that? The answer can vary depending upon what it is that you are trying to accomplish but generally speaking the goal of most traders and investors will be to protect existing assets while giving them the opportunity to grow. Just to use a random event as an example, we know that any decision regarding the debt ceiling is imminent when this issue is present, we may personally have an opinion of what that outcome will be which is fine but is it a good idea to bet our assets on what our opinion is based on something that is completely out of our control or is it better to position our assets so we can take advantage of whatever the decision is which of course will likely send the markets in a given direction. I’m certainly not saying that we can get on the right side of market moves all of the time nor am I saying that we can always get in right at the beginning of those moves but I am saying that with a little planning and common sense we can probably get on the right side of many of them.