Look, I’ll be upfront with you — I’ve dabbled a “few” times in drugs & alcohol over the three decades I’ve been alive. Yah, it’s fun. College is experimental, don’t hate me. But anyways, remember the opening to The Wolf of Wall Street? You know, the scene where he blows some china off a stripper a** to proclaim money is the greatest drug of all… of course you do. The point I want to make is the danger of euphoria. The problem with euphoria is it feels oh-so-good in the moment, but its a son-of-a-gun coming down.
With the market at all time highs (pun intended), you ought to be feeling a lot like Leo right now. All your positions are dope, and you are just smoking the fumes. DO NOT let the dollar signs give you the warm-and-fuzzies. It could be tomorrow, it could be Wednesday, or it could be 6 months from now… but eventually there will be a downtrend because the market moves in a rhythm.
So what do you do when the market is making all-time-highs? Simple, you let your stallions ride and shoot the ponies. Don’t go chasing momentum and don’t go speculating. Those ships left the port Wednesday — in other words, while people were fretting about being in the red, the traders were gobbling up shares on a bargain in order to spin them to frenzied rookies during the next upswing.
Instead, let’s be smart. First thing you do when you open up your trade desk (or phone) tomorrow is to begin setting stop limits. You must protect your gains. Next, evaluate your positions. And no, evaluation does not involve selling off the ones not making money. Instead look at the chart and determine if the volume is still flowing, whether the trend is still in tact, and then head over to the news & financial statements. If the chart is beginning to look asymmetrical and negative news is beginning to rear its ugly head, then you need to ring the register.
Don’t sell all your shares. Don’t even sell half. BUT DO TAKE PROFIT if it’s warranted. Typically I will reign in a wild-mustang-of-a-position 20-25% at a time. Sometimes I rebuild that position if a good pullback warrants it or I consider the company a long run winner. But the real idea is to become a habitual contrarian — oxymoron’s are key to good trading. You want to be fearful when the market is euphoric. You want to be Mickie-freakin-Mouse when everyone else sees the grim reaper. And when its doing nothing, you want to be doing everything.
Now one warning, do not become a perma-bear either. There’s a minority of traders who are short damn near everything with an imaginary pile of endless capital that they like to give away to Tesla. And to Apple. And to pretty much any other technology stock or emerging market out there. These people have been waving the white flag since the housing crisis. But in reality, they are the same as any bull, just with a sick/twisted world view.
Instead, you are a bear when the bulls run, and a bull when the bears are waking from hibernation. That’s the key to being a good trader. No one throws $1,000 on the favorite to win the World Series a day before Game 1. With stocks, you find the underdogs or the front end of a trend, and wait for others to fill your coffers. Taking & protecting your profits is the true euphoria.
P.S. Semiconductor stocks aren’t cheap. Don’t fall into a bull trap either (looking at you Micron)