Author: Ivanhoff

There is no need to be in the market all the time. There are times to be aggressive, there are times to protect your capital. Unlike in sport, in the market the best defense is not offence.

Watch and wait for that fat pitch to come. It always does. If you are a swing trader, I guarantee you that the market will provide at least one great opportunity every week. How do you recognize it in advance? You don’t. Even when all your requirements align in space and time, there will be false signals. You will be wrong at least half of the time. Being wrong is not a choice. Staying wrong is. In the words of Ed Seykota: “If you don’t learn to take small losses, sooner of later you will have to take the mother of all losses”.

Sharp declines are often followed by short-term bounces. This doesn’t mean that you should try to pick bottoms. Even if you manage to properly time your entry, the potential reward of knife catching often does not justify the risk taken. The opportunity cost in terms of potential aggravation and loss of confidence is too high. Multiple consecutive losses, even when small, will frustrate you and blind you for other opportunities that are always around the corner.

During market declines, most stocks correct through price. I prefer to pay attention to those that correct through time (go sideways) and make new 52-week highs. It makes more sense to focus on the stocks that hold the best and buy them as they break out from their recent consolidation.

Granted there are different methods and if bottom picking is your thing, go for it. You can do anything as long as you know how to manage risk.

1. You can talk stocks, options, futures and bonds all day long with people who share your passion. Finally someone will listen to you.

2. If you are good enough, you will be discovered and offered a way to monetize your talent.

3. You will make friends with like-minded people and your collaboration might lead to the creation of business relationships.

4. Your messages are distributed to most of the major financial media – Reuters, Bloomberg, Yahoo Finance, Bing, CNN…How cool is that.

5. You can make money by following other people’s advice. You can lose money that way too.

6. You can learn how to properly trade/invest and manage risk from people who actually do it on a daily basis.

7. You can significantly accelerate your learning curve as you learn not only from your mistakes but from other people’s mistakes too, in real time.

8. You can get financial news in real time.

9. You can get the reactions to news in real time.

10. You have access to some of the most sophisticated financial minds. You can ask questions and learn.

11. You can build a solid reputation and following the right way; without all the hype and special connections. It doesn’t matter who you know if you are good at what you are doing.

12. You can build a solid network of traders, investors, analysts…Communicating with smart people makes you smarter, faster.

13. You can ask some companies’ CEOs and CFOs direct questions to be answered on their regularly scheduled earnings calls.

14. You can get summaries and timely comments from the hottest earnings reports and IPOs in real time.

15. You  can share and review charts in a convenient manner.

16. You can get a quick snapshot of the current market sentiment.

17. You receive a constant flow of trading/investing ideas.

18. You receive links to the most relevant and interesting financial posts and videos across the web.

19. You can customize your stream of messages by choosing which stocks and people to follow. Cutting down the noise could do wonders for your returns.

20. You get the good with the bad. People are sharing in real time not only their ideas and profitable trades, but also their criticism and losses.

21. It is free.

Full disclosure: I work for StockTwits. No one made me to write this post. For all I know, Howard Lindzon fires me twice a week for having the guts to criticize him.