Yesterday, I asked the question: will the Dow get to 10,000 this week? I wasn’t sure yesterday, but with the Greece debt issue looming over the European economy, it looks doubtful, even though the March retail sales hit a record …
NEW YORK (Reuters) – Top U.S. retail chains posted a record rise in monthly same-store sales in March, helped by an early Easter holiday and an improving job market, in the strongest sign yet of revived consumer demand.
I expect, as Jim Wyckoff predicted back in January, the market will bounce up and down in a range for most of this year. Given this, it is best to adjust your trading strategy to fit this reality, which brings me to a question I received recently …
What is a good way for a trader to shield his trade from losses?
First, let’s change one word in the question to better reflect reality – “shield” to “hedge.” It is difficult to shield trades from loss, but one can hedge his or her “bets.” This might seem somewhat picayune, but, as I am a writer and a trader, words matter.
Many traders utilize options to hedge their trades. The possible strategies here are numerous, so I suggest you begin learning about options. Once you understand how they work, you can then investigate and apply a hedging strategy that fits your trading plan.
Another consideration for you is combining long and short trading in a particular trade set up. For example, if you like a particular technology stock (it is fundamentally sound and it has been going against the sector trend), but the sector is showing overall weakness, you can go long the stock and short a technology ETF. If your stock goes down, it is likely the ETF (representing the weak tech sector) will go down as well, which means you will probably offset your loss from the stock. If your stock goes up, and the ETF goes up, you cover and let your profit run. If your stock goes up and your ETF goes down, well, congratulations as you win both ways. Again, the possibilities here are numerous, so play with the concept. Keep in mind, though, following this approach requires you understand your sector and your market well.
Trade in the day; invest in your life …
