Swing Trading: QLD, QID, TWM, DXD, SDS

January 19, 2012, 09:51 am ET, BY Thomas H. Kee Jr- Editor, Stock Traders Daily| Editor: Thomas H. Kee Jr. (Follow on LinkedIn)

Technically, the break above 1300 in the S&P 500 is significant and it must be respected. 

Regardless of the opinions you have heard from me or anyone else who is bearish on the economy (I see more red flags now than I have in a long while, so I am quite bearish too), one of the most critical aspects of proactive investing is to stop listening to the noise, and sometimes that means stop listening to our own opinions too.  We cannot and will not be smarter than the Market, and although it is counterintuitive to us all to accept when we are wrong, once we are able to stop trying to impose our will onto the market and we just start reacting to it we actually will be able to make positive headway regardless of what the market does.

In recent days, as the Market tested 1300, I issued sell recommendations for the positions that we were holding from much lower market levels.  Those sell recommendations were for the positions that had a longer duration proactive objective.  Then, after we sold we engaged a short-side bias.  I recommended TWM, SDS, QID, and DXD near S&P 1300, which was defined resistance.  Effective January 20, 2012, all of these positions had been stopped and I do not expect prompt re-entry, at least for the time being.

Purposefully, we exited the long positions that we were holding when the market approached this important level of resistance, and we initiated shorts near this important level of resistance too.  This practice of initiating trades near inflection is extremely effective, and it has allowed our Flagship Strategy, our Swing Trading Strategy, to gain 24% last year.  Our objective, once we exited the long positions, was to engage a stick and move strategy, and that is exactly what Swing Trading does.

This is a very important concept, because the notion of stick and move does NOT imply one-sided positions, and that quells the imposition of our opinions, and the noise from the media too for that matter.  Instead, this proactive approach embraces the fact that we will be right sometimes, and wrong sometimes, but if we make these decisions around key levels of support and resistance we can also maximize our returns when we are right, and keep our losses to a minimum when we are wrong.

Ultimately, that is the goal of proactive strategies, and given the dire nature of my longer term economic assessments, I believe the best approach to the market for now, and until the next phase of capitulation (e.g. last summer), will be to engage stick and move strategies with the objective of initiating trades near inflection, realizing short term gains and then moving back to cash, and then repeat the process over time.  My unyielding opinion is:  SHORT TERM GAINS LEAD TO LONG TERM SUCCESS.

When the Market broke out on Wednesday our Swing Trading Strategy bought QLD, it has already secured gains, and it is now up almost 7% YTD.  When I say stick and move works, I mean it can work in any market environment, regardless of economic conditions, regardless of our opinions, while removing emotional burdens that weigh heavy on us too, and that can allow us all to live much better lives as well.  Stick and move has worked for a long time, and I expect it to continue to work over time.  I am recommending everyone review this process.

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