My Red Light Green Light Analogy

When you are driving your car through traffic and you see a red light you have to wait. When you have a green light you get excited and you get to go. The point is there are two lights, as well as the yellow light, but we wont focus on that today. I compare my trading account to Red Lights and Green Lights. When you are down on a position its in the Red and when you are up you are in the Green. These two colors happen in your account all the time. The point is that when its red you don’t run the light, in other words add to the position, and when its green you can continue forward through the light add to the position and keep up the momentum.

On a Christmas tree you have green lights and red lights, same deal. Just remember that is how it works, you will always have good days and bad days and if you work the trading just right, you will be able to accumulate massive amounts of cash in a short time. Add to your growing positions and wait on your losers, as well as have stop losses in place for your losers. You also need to have target prices for your winners and when it hits, take half the position off the table and let the rest ride.

A friend of mine held SRS (double short) for several months as the volatility disappeared from that ETF and the market continued to be bullish, however it was offset by a massive gain in a stock he went long in (GGP). If he had cut his losses and let his winner ride he would have been up around $40,000 instead of break even or $0000000!

Here is a good example of our buy strategy on a chart done by one of our subscribers. Number 3 and 4 are where you enter the stock because you notice the ema flattening out, where as at 1 and 2 it was still pointing down.

GS strategy buy.

Just remember as time goes on you will want to ingrain these ideas and have them on the forefront of your mind as you invest and trade. This principle could probably be applied to many areas in life, just look around and see where it fits.

Market Summary:

Stocks spent almost the entire session trading with moderate losses until some late support helped the major indices improve their position and settle at afternoon highs near the neutral line. Like most of the session’s moves, the late lift came on light volume and without leadership… Moderate weakness in the broader market led stocks to open the session in negative territory. They did make an early run up to the neutral line in the minutes ahead of the Chicago Purchasing Managers Index, which came in at 60.0 to top expectations and hit its best level since 2006. However, stocks were met with resistance at the neutral line and spent the rest of the session without clear direction… There wasn’t much else in terms of news flow this session. The lack of cues left many to focus on the dollar, which had extended its rebound from the previous session to a gain of 0.5% against a basket of foreign currencies before it pulled back to settle with a gain of just 0.1%… The greenback’s reversal caused commodity prices to improve, thereby helping drive the materials sector higher. Materials stocks settled with a gain of just 0.1%, though… The energy sector settled with a fractional gain even though oil prices closed pit trade with a 0.5% gain at $79.30 per barrel. The advance by oil came even though weekly oil inventories showed a smaller-than-expected draw of 1.54 million barrels… Tech was this session’s best performing sector. It booked a 0.5% gain with help from semiconductor stocks, which advanced 1.5%. With just one session left in this calendar year, semiconductor stocks are on track for a 70% annual gain, which is more than double the near 25% gain that the broader market is headed for… Though the tech sector is the largest in the S&P 500 by market weight, the broader market refused to rally behind its strength… Treasuries have had a quiet session, even in the wake of a $32 billion auction of seven-year Notes. The auction was met with a bid-to-cover ratio of 2.7, which is slightly below the previous auction’s ratio, but above this year’s average ratio of 2.6… Trading volume was paltry for the second straight session as fewer than 650 million shares traded hands on the NYSE during the latest round of action. The average for the past 50 sessions stands close to 1.2 billion shares. Dow unch, Nasdaq +0.1%, S&P 500 unch., Nasdaq 100 +0.4%, Russell 2000 unch., S&P 400 -0.2%

Enjoy your new years eve tomorrow!