Trading Desk: The Anatomy Of A Perfect Score

While stocks will eventually recover from this year’s slide, buy-and-hold investors rightly feel that they’ve wasted wasted months of time waiting for any sign of progress much less profit. One way or another, we need to narrow our time horizon and become short-term traders if we want to keep money moving.

Today, for example, the market’s still-fragile confidence crumpled before the opening bell even rang. The job market remains strong. Wages are rising. After months of learning to flinch from every hint of inflation, the bulls scattered.

It’s not fun to watch the futures drop 2% in a matter of minutes. But I noticed that money wasn’t actually moving out of the bond market, where traders know how to weigh the economic numbers the Fed really cares about.

Smart stock market players, in turn, have learned to take their cues from bonds. Yields barely budged, which told me that the early slide was an exaggeration . . . and an opportunity.

I told my 2-Day Traders to buy NASDAQ calls that would make money once tech stocks recovered from that initial 2% dip. We weren’t extremely ambitious, picking a contract that gave the market up to a week to rectify its mistake.

It didn’t even take an hour for stocks to get a little backbone back. And it didn’t take a huge reversal. By 10:20 a.m., the NASDAQ had clawed back about half a percentage point . . . raising the price of our calls by a little less than $1 in the process.

In 45 minutes, we’d made close to 13%. That was enough. There was no need to get greedy in a market where the slightest upset can still turn into a rout.

By the closing bell, traders who bought the underlying index at the open were up a healthy 1.3%. The leverage inherent in options let us score 10X on the exact same intuition that the dip was overdone.

And those who sold stocks they liked well enough to own yesterday are out in the cold. If they want back in, they need to pay a little more . . . or hope for a better entry down the road. These are the traders I feel sorry for. They blinked and paid the price.

You’ve got to have conviction to stay in the market for any length of time at all. Believe in your assumptions about the economy and the companies you follow. When the market interprets the facts differently, stand your ground.

One day, even the people who bought the market a year ago and watched their investment lose as much as 25% of its value will be rewarded. Odds are good those who buy the market today will be up 10-11% a year from now.

That’s great if you can stand your ground for a year without panicking or needing to liquidate along the way. Some of my favorite stocks really need a decade or more to really strut their stuff.

But we only have so many years in the market. I hate wasting even one day let alone an entire year waiting for money to move. Let the long-term money move at its long-term pace. Keep some short-term money moving at all times.

Be the tortoise, slow and steady making progress to your ultimate goal. But be the hare also, keeping part of the portfolio hopping around. My 2-Day Traders have been hopping around. Compound enough moves like the one we made today and you’re looking at real money . . . even when the market as a whole goes nowhere but down.