Friday’s action did little, if not nothing, to change the uncertain landscape in the stock market. Both the Dow and S&P 500 squeaked out small gains. The NASDAQ had the best day, logging 12 points but is still stuck in its sideways channel.
The Fed will be raising the funds rate again this week to 4.75% which is the 15th consecutive increase. The question is, how will the 10-year treasury react? If we see yields pop up along with short-term rates, this may start to squeeze the equity market. As I have mentioned over the last few weeks in my column, equity traders have been focused in on the 10-year yields. The correlation between bond prices (10 year) and the equity market has been pretty tight.
I’d like to change the subject. I had a conversation with a self-proclaimed swing trader. He was introduced to me by a mutual friend. As our initial conversation progressed past the formalities, it found its way to his concern: why he wasn’t making money. As he started to familiarize me with his strategy, something became apparent. He wasn’t a swing trader! Although he felt comfortable with the holding period of a week or so, his rationale was all wrong. As we continued our dissection of his thought process, none of the facts he used in determining an investment was consistent with a swing trader.
Mr. Swing Trader was basing his short-term decisions on things that would affect the stock in the long run. He was investing in a pharmaceutical company and here are the reasons for his decision.
After hearing this, my question was simple: why will the stock increase in value over the next week or so? Again Mr. Swing Trader repeated his aforementioned reasons. As I’m sure all of you are realizing, his reasons for investing in a stock is not pertinent to his holding period comfort zone.
As I explained to new my friend, one of two things must change in order for him to be successful. First, change his holding period to take advantage of his more fundamental view of the market. Second, become more focused on things that will influence the stock for the time period he feels comfortable.
The lesson here is that to be a successful trader you have to first examine yourself. You have to know yourself and what you are most comfortable with. If you are a long-term fundamental investor (like Warren Buffet), don’t get hypnotized with a level 2 screen all day. If you are an intra-day trader, don’t use elements that will affect the stock several months down the road. To make an analogy: If you are driving from New York to Boston why would you check the weather in Los Angeles.
Tom Incorvia is a swing trader with 18 years of experience in the financial markets. E-mail him at tincorvia@gmail.com.
Disclaimer
The article submitted to the Tiger Shark Publishing LLC is presented for informational purposes only and should not be construed as a solicitation to buy or sell securities or securities derivatives of any kind, nor serve as any type of investment advice or strategies. Actual results may differ greatly from expressed opinion. The author expresses a personal opinion and will not assume any responsibilities of the action of the reader.