So you want to trade, eh? You want someone to teach you how to trade, eh? Well, then, make sure the first question out of any potential teacher’s mouth is: “Do you have the stomach for it?”

Last Friday was the kind of day professional traders may or may not see coming, but it is expected nevertheless. So, when it happens they see opportunity, the kind of opportunity that has characterized the market for the last, oh, four or five years – sell, the rip, buy the dip. It takes a strong stomach to get into the groove on this and then stay in the groove because you never know when a dip might become a plunge.

  • Friday’s volatile action should have been exactly the kind of churn that spooks retail investors,” … “And yet, the data is clear: retail bought this dip.”

What I find interesting about the above is that the “retail” trader has long been seen as not having the savvy of the professional trader (questionable indeed), and this might have been true when online trading platforms first came out and many folks, unskilled and untested, decided to jump into the water with the sharks. Oops! Those were the folks who created the stereotype of the retail trader.

Yet, the large buying spree on Friday and the resulting move today suggest the stereotype is not accurate.  

  • Buying that dip looks like it may be the right call today, with benchmark indexes rebounding and Apple and Facebook posting gains in early trading while the UVXY tumbles.

And yet, some of those professionals, the ones blathering on TV, the ones with all the resources, connections, and tools to make money in the market, often seem confounded by the market, confused, dazed, and otherwise befuddled, as they pop up on Fox, and CNBC and tell us all how the market should not be behaving the way it is; it should be behaving the way they predicted it should behave, and it isn’t.  

  • Despite lackluster U.S. economic data, a world grappling with slow growth, and concern that Greece and Ukraine could default on their debt, the U.S. stock market has been more than resilient – making it hard for short sellers. Major indices are less than two percent below record highs.

Yes, trading/investing can be a worthwhile financial endeavor, but make sure you have the stomach to buy when the market conditions suggest buying and sell the same. As well, make sure you learn how to read the market (it is not rocket science) utilizing good tools and common sense. Oh, and one other thing – don’t listen to the myriad talking heads out there telling you where the market is going and why. These folks are usually split 50-50, which is just about how good they do trading, on average.

Trade in the day; invest in your life …

Trader Ed