In today’s Money Weekend…dealing with frustration…avoiding mistakes…listen to the market…keep your powder dry…and more…
My day job is giving stock trading advice to many people, and I write these articles in the hope I can help people in their trading and investing efforts.
Whether you are investing for your self-managed super or mucking around trading stocks for a bit of extra cash, you will go through the same emotional turmoil as you grapple with the million and one decisions you need to make along the way.
If there’s one emotion that I would say keeps cropping up over and over, it’s frustration.
I am currently feeling pretty frustrated by the price action I am seeing in the market at the moment so that’s why I want to discuss it today.
Trading during the market crash and recovery has been a roller coaster to say the least. But even though it was incredibly tough, it was also exciting.
It’s why I do what I do.
But since the strong rally that ended in December last year, stocks have been listless despite the fact the ASX 200 continues to levitate higher on the back of the banks.
As times like this drag on it can become incredibly frustrating watching the US stocks you are in go nowhere or down.
The fact is the market moves in cycles of feast and famine and it’s hard not to lose the money you made during the feast when the taps turn off.
You can’t force the markets to give you money and the harder you try to draw blood from a stone the worse the frustration gets.
The frustration is in reaction to the market’s movements, but the market couldn’t care less whether you are frustrated or not.
Mistakes start happening once frustration sets in.
Positions that should be held are dumped due to boredom.
Mediocre trades are done because you think you need to do something.
Then you end up managing crappy positions that you never wanted to be in anyway.
The thing I am saying to myself each day as I watch stocks drift is that my frustration is a warning sign that must be respected.
The market is never going to behave as you expect. You are never going to buy the low and sell the high.
Whatever happens in your journey as a trader and investor, frustration and disappointment is going to be part of that journey.
Rather than fight it, just accept it.
Then the frustration loses its power over you.
Listen to the market
The way I see it we are at a crossroads.
The market has been rallying strongly since the crash but is running out of steam. We are testing the all-time high and will need a good reason to bust above it and keep rallying.
I reckon there has been a lot of profit taking going on over the last few months as we approached the all-time high, and if the market can soak that selling pressure up and keep rising we may be in for a fabulous rally.
But the way small- and midcap stocks are moving at the moment doesn’t fill me with hope that the vertical rally since the crash is going to continue.
Usually when the breadth of the market falls away it is a warning sign that a short-term top is close by. My view of market breath is just anecdotal so take it with a grain of salt, but I watch the markets closely each day and there’s not much momentum out there across the board.
We are also approaching May and we all know the saying to ‘Sell in May and go away’. Perhaps that is sage advice this year.
The charts still look fine so there’s no need to panic yet. Let’s just call it a feeling in my bones.
US stocks didn’t like the announcement on Thursday that Biden is considering doubling capital gains tax for people who earn over a million dollars. It was a blip in the scheme of things but if Biden is determined to raise taxes for corporates and investors, we may see a rockier road for US stocks going forward.
Keep your powder dry
The upside to a profit-taking period like this is that at some point there will be a few bargains to be had.
Exercising a bit of patience now could reap large dividends down the track if we do see some sort of correction from overbought levels.
Rather than panicking out of your positions like everyone else, you will be calmly placing bids below the market and soaking up the stocks that you never thought you’d have a chance to get a hold of.
So, my advice to you right now is to let go of any frustration you may feel at the current state of play and start building up a shopping list of stocks that you’d like to own.
For Money Weekend
PS: Promising Small-Cap Stocks: Market expert Ryan Clarkson-Ledward reveals why these four undervalued stocks could potentially soar in 2021. Click here to learn more.