The S&P 500, after touching 1,440 on Monday and being up 16 points at one time, did an intraday reversal and closed up only 1 point. Art Cashen, a highly respected NYSE floor trader mentioned that fact and pointed to anemic volume, something that we reported to our readers. Then the cliche "Trend Setting Tuesday" took the Bulls to summer school and taught them a hard lesson in market mechanics.
It is not in POTC's best interest for the market to go down, although we do accept and embrace volatility since our 8th Commandment reads "there are two sides to the market, take advantage of that leverage." Please remember Google (GOOG) a month back, it made a $90-plus move up in one day after the earnings report. Quick Psychology: It is a "market of stocks", NOT merely a "stock market", and those who learn the inexact science of market mechanics take advantage of days like these and begin to build long positions and buy less expensive calls as premiums vanish. Perhaps many Americans will choose to stay home and not hit the highways this Memorial weekend? Perhaps GOOG will see much better comparables over last year's Memorial Day clicks through? We sure think so!
The Psychology of the Call team is always looking-forward with our reader’s best interests in mind. Pertinent to that sentiment are the 11 commandments of trading, which we recommend that you follow regardless of whether it’s an up, down, or sideways market. We wish everyone in the U.S. a safe and proud Memorial Day weekend, and extend our good wishes and gratitude to our faithful readers in more than 70 countries around the Globe.
The Eleven Commandments of Trading
1. Never trade more than 10% of your total capital/account value in any one position.
2. Cash is King, and we recommend keeping 20% liquid to take advantage of dislocations and volatility.
3. Cut losses to 15% maximum whenever possible. If your psyche is shaken, step away and don't trade for 1 week.
4. Take and enjoy profits of 30% or more.
5. Never fall in love with a stock and never force trades or over trade; remember commandment #2.
6. Never accept excuses from management, period.
7. Use technical and fundamental data & psychology/sentiment from the conference call to select trades.
8. There are two sides to the market, long & short; take advantage of that leverage.
9. Understand the significance of the macro geo-political economic environment.
10. Unforeseen events/shocks will happen, inverting the market upside down (remember commandments #1 & #2)
11. All of the above are void without reading the Psychology of the Call.