Timing The Markets For Low Risk And Big Profits

| June 23, 2010 | 0 Comments

The ocean has an air of peace you can’t find anywhere else.  To me, a wave rolling onto the beach is one of the most relaxing sounds.  With the seagulls chirping overhead and the feel of hot sand beneath my feet, it’s a small slice of heaven.

But the relaxation comes to an end when I jump in the ocean…

You see, I grew up in the mountains.  I’m more familiar with a pair of snow skis than I am the ocean.  Don’t get me wrong… I can swim.  But I won’t be challenging Michael Phelps to a race anytime soon.

Sometimes I run into the ocean, failing to realize just how big and powerful the waves can be.  I usually time my entry into the water at just the wrong time.  My wife says I look like a cat in a washing machine as the wave washes me back to shore.

Just like swimming in the ocean, timing your entry in the market is a must…

Time your entry right and its smooth sailing.  Do it wrong and you’ll get a mouth full of seawater and a load of sand in your ears…

Jumping into a market at the wrong time can result in taking on excess risk.  Seasoned traders control risk by waiting for just the right moment to enter the market.

If you’re a beginner trader, you might lack two things, patience and discipline.

When you see a stock surging higher, you want to get in on the excitement.  The feeling of being left behind can overwhelm you.  You don’t have the patience to wait for a better entry.  You don’t have the discipline to move on to better opportunities.

Maybe you were afraid to enter the stock at the correct entry.  Maybe you weren’t following the stock and just happened to see it surging higher.

By missing the correct entry for the stock, you “chase” the market higher.  You end up buying at premium levels.  Your plan is “hoping” the market continues to move higher.

Sometimes this will work, but most of the time you’ll get burned.  You end up buying when the pros are taking their profits.  If you don’t know how to size your positions properly, you can get burned badly… or totally wiped out.

I can hear you asking…

Well, what if I wait for a better entry and I never get one?  Don’t I risk missing the chance to make huge profits?

Yeah, in this stock you do…

But there are thousands of other better low risk opportunities out there.  The markets are full of them.  Just keep looking and you’ll find plenty.  Don’t feel as though this is your last opportunity to profit.

Warren Buffett is famous for the saying, “In this game the market has to keep pitching, but you don’t have to swing.  You can stand there with your bat on your shoulder for six months until you get a fat pitch.”

If you missed the correct entry in commodity or some stock you absolutely have to be in, you have two options:

    1. You can “chase” the trade.  But you must accept the fact that the dollar risk of your entry is much higher.  You must adjust your position size to this higher risk.  (But I don’t recommend this.)
    2. 2. Wait for the correct (low risk) entry.  Usually stocks see a pullback.  Maybe it’s another test of a support line.

By being diligent and watching the markets for low risk opportunities, you can still make nice profits… even in these turbulent markets.

Trust me:  Don’t run head first into a wave and get your ears packed with sand!

Tags: , , ,

Category: Technical Analysis

About the Author ()

Justin Bennett is the editor of Commodity ETF Alert, an investment advisory focused on profiting from the ebb and flow of important commodities via ETFs. The commodity veteran and options specialist is also a regular contributor to the Dynamic Wealth Report. Every week, Justin shares his thoughts with our readers on a variety of commodity-related topics. Justin is also a frequent contributor to Commodity Trading Research’s free daily e-letter. And he’s the editor of another highly successful and popular investment advisory, the Options Profit Pipeline.

Leave a Reply

Your email address will not be published. Required fields are marked *