An underrated but critical attribute of successful swing traders is the ability to adapt to market conditions. In the trading game, nothing lasts forever. The stock market is an organic beast that constantly changes conditions, and those that can keep up with the changes win. Markets trend, markets chop, markets dip and dive with parabolic breakouts and breakout failures. As a swing trader, you need to have a zen-like oneness with the market and adapt to changing conditions. My hero Bruce Lee famously said:
“You must be shapeless, formless, like water. When you pour water in a cup, it becomes the cup. When you pour water in a bottle, it becomes the bottle. When you pour water in a teapot, it becomes the teapot. Water can drip and it can crash. Become like water my friend.”
What does water do? It ADAPTS. Liquid adjusts to the conditions around it. That is what you must do as a trader.
Back in the day, early on in my trading career, I thought I was the “ish” as a trader. Everything I did worked and I made a lot of money in a very short time. I had — count em — two breakout setups and traded them religiously. I had no methodology. Market conditions meant little; I did not even look at SPY or QQQ. I didn’t understand the intricacies of price and volume, along with support and resistance as they related to breakout trading. Still I made money. How much? We don’t need the details, but enough for a 22 year old recently broke law student to live it up in a luxury high rise in a big city.
You know what’s coming. It is inevitable. The market winds changed. There wasn’t a big crash. No, that would be too easy. Instead Mr. Market subtly changed direction. Where markets trended, they now went sideways and consolidated in a back and forth CHOP! This doesn’t sound as gruesome as a big crash does. However, I would rather have a big crash. With a crash you take your lumps, but you know exactly what’s in front of you. Chop is a different beast. It tricks you by wearing the mask of a breakout or breakdown, but is something else all together. If you don’t adapt quickly enough, it will slowly kill you.
That my friends, is where we are now. CHOP! Not only do we chop, we chop in a continuous, slow rising uptrend. Do you see the problem with this? The problem is we all use stops and our stops are getting hit in the midst of the slow rising uptrend’s CHOP.
We must combat the chop by adapting our trade management strategy. Until we get a defined trend, we must be willing to take profits quicker than usual. Now this goes against my trading style. I like to ride trends. My overall strategy is to take lots of small losses, hit big winners and completely ignore win rate. However, I know when I must change things up, and this is that time.
For now my gameplan is, until otherwise informed, that I will take quicker profits, sometimes even ignoring my hard 2 to 1 risk ratio rule and look for a higher win rate. In my Trade Report Swing Trade account, I already did that with my recent Facebook (FB), TGTX and Gold Miner (NUGT) trades, and will likely use this strategy with my SPY short as well.
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Great read Paul.
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I do agree with you it is mandatory to adapt the changing stock market conditions for becoming successful trader. Its not easy to trade in stock market. You have to learn lots of things for it.