Don't Let the Indices Mess Up Good Trades

A great amount of market commentary focuses on overall market direction. It is an important topic and obviously very meaningful but it can also be a great distraction if you are trading individual stocks.

The majority of stocks are correlated with the direction of the indices but it is a loose correlation and can be meaningless in the short term. It is easy to fall into the trap of dumping good positions because of weakness in the indices. We worry that a big turn is coming and we want to cut our risk.

If you are managing your trades based on what is happening in the indices you are very likely to make some poor decisions. That is especially so when there is trading range action like I believe is developing now.

When I first started trading I paid very little attention to the indices as they often led to emotional reactions. I have learned that overall market conditions can make a big difference in how a stock acts but you have to be able to filter out the random noise that isn't important. Currently I see the action in the indices as being more noise than substance but that can change very fast if a new trend starts.

The point is that when trades are working in individual stocks don't let all the yammering about the health of the indices impact your thinking. There is always going to be talk about what the market is going to do next but much of the time it isn't going to help your trading.

The action so far today has been a good example of that. The bears were briefly excited about the negative reaction to retail sales but the market shrugged it off and danced around to the China trade rumors instead.

We are seeing some signs of the indices rolling over again as I write but stay focused on your trades rather than the latest predictions about the indices.

At the time of publication Rev Shark had no position in the securities discussed.