If you heard or read any financial news over the past few days, you inevitably found the talking heads rambling about the various implications of a potential U.S. government shutdown.
As usual, the media is once again playing on the powerful human emotion of Fear, one of the 4 Most Dangerous Emotions For Traders.
This newly-created investor fear over a potential government shutdown has caused the S&P 500 futures to slide about -0.8% lower as of this writing (pre-market on September 30).
Understandably, several concerned subscribers to our nightly swing trading newsletter have just e-mailed us to hear our thoughts on how we would handle such news.
Similarly, many traders wanted to hear our thoughts when the U.S. was on the brink of attacking Syria three weeks ago (click here to read our thoughts on that potential news at the time).
So, if our fearless leaders fail to come to some agreement by midnight tonight, and the U.S. government partially shuts down for the first time in 17 years, you may be wondering…
How Will We Handle The News?
The answer is pretty simple; we ignore it. Yes, ignore it.
During most bull markets, there is typically a “wall of worry” to climb. The details are different in every bull market, but there are usually one or two major “risk factors” that investors worry about when stock markets are trending steadily higher.
At such times, traders and investors who focus on doomsday headlines from mainstream financial media sites are more than likely to be shaken out of their long positions…especially those who lack conviction in their trading system.
Conversely, we intentionally distance ourselves from Wall Street chatter by focusing on individual price and volume action of leading stocks and ETFs (the only time we pay attention to news is during quarterly earnings reports).
Holding through a stock market pullback is never easy, but it is NOT our job to decide when a stock market rally is over.
If we approach trading with a clear and objective mindset, the stock market will always tell us what to do, based on the price and volume action of the leading stocks we are holding.
If our swing trades are holding up and showing relative strength, great! We will continue seeking the best stocks to buy, while riding the gains of our existing winning positions (just as we are doing now).
If, on the other hand, our ETF and stock positions sell off to trigger our protective stops, we will simply be forced into cash.
The beauty of such a rule-based market timing system is that it removes all the human emotion and guesswork from trading.
This increases our long-term trading profits, while also providing the added benefit of enabling us to be more calm and stress-free, regardless of what’s happening in the stock market.
The #1 Habit New Traders Should Pick Up
If you are new to momentum swing trading, or have had little success in the past, it is a great idea to get in the habit of planning your trades and trading your plan.
You must continually attempt to identify all potential outcomes before taking on a trade.
If you do, there should be no surprises once the trade is on because you realize that anything is possible, and you have already accounted for it.
The idea is to worry before the trade, so that you can simply focus on executing the plan when you are in the trade.
Above all, focus on the price and volume action, rather than the amount of profit or loss a trade is showing.
Put another way, trade what you see, not what you think!
If you make a habit of always doing the right thing, consistent trading profits will eventually and inevitably follow.
What do you think? Are we right or wrong to focus on price and volume action, rather than news? Drop us your thoughts below.