With respect to #2, avoid trading, this would most likely be a mistake over the long haul.Originally Posted by asomani
Pulling down my handy-dandy Stock Trader's Almanac, November, December, and January are the year's best three-month span using the data from January 1950 to April 2009 (I'm using my 2010 edition since I can't seem to find my 2011 copy). To whit: average gains of the S&P are 1.5%, 1.6%, and 1.1% for the three months respectively. For the R2K, since 1971, we have 1.8%, 2.6%, and 1.9% respectively. If you want to be defensive, e.g., R1K, then you're looking at 1.7%, 1.6%, and 1.2% respectively. The NAS is along the same lines: 1.6%, 1.9%, and 3.0% respectively.
The problem isn't addressed by sitting out the market unless you simply cannot tolerate the volatility. For those of us who cannot stomach a bad year and then more volatility as we go into a low-volume period, then sitting out is the best course of action, but it's not the most prudent in terms of building wealth.
Shortening time horizons for holding appears to be the best solution. Taking profits quickly, e.g., when a profit target was hit as opposed to a macro signal changing, also seemed to be the key over the past few weeks. When we did whipsaw to the down side, I'd always placed a timed order for a trailing stop loss of 1% to be active for the DAY at 9:35 on the day where it looked like I was going to get clobbered. More often than not my TSL remained intact and expired at the end of the day. Riding through the volatility seemed to work, but again, my exposure was quite slight.
Anyways, we start a new year on Tuesday. I expect a bump in January, but then if I'm not careful, February (historically) is a really poor month and it would be quite easy to give it all up. Your crystal ball is as good as mine.
Regards,
pgd
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