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We play the market whichever way it goes. The strategies employed are not textbook day trading strategies, though the moving average plays and earnings plays can be one day plays at times. We have trades we hold for days, we have trades we turn over in a day (truer day trades, but still really not day trade strategies). It all depends upon what we are looking for out of a play: playing an uptrending stock for a few days, riding a breakout for a few days, or playing a technical bounce on a moving average play for a day or so.

Regardless of the strategy, however, you cannot forget about what the market is doing. With the market still in a state of extreme flux, if a stock starts waffling on you and breaks its trendline, do you want to take the chance that the market will hold up long enough for your stock to turn around? We keep tabs on the play several times during the day to know where the market is going that day and if the stock is following the market.

We play the market whichever way it goes. The strategies employed are not textbook day trading strategies, though the moving mediocre plays and earnings plays can be one day plays at times. Given the market conditions, we have had to watch our trades much more diligently. That is why we at all times stress, regardless of market conditions, innermost being defensive, setting stops, advising your contact of bailout points, etc. That is also why we look at plays from a short term perspective as well, noting resistance, support, increased selling, etc. That way you are sensitive of support and resistance, and if you are in a longer term play but the market and the stock start to falter, you have the information to make prudent decisions in reference to whether you want to sell or hold. If the market is falling, you don't want to be trying to figure this out for the first time. It helps to plan ahead: if ABC stock breaks support at $90 and the market is falling, we plan to sell. It helps keep emotion out of the equation, and that usually results in a overbear rear line. So, we follow stocks closely and on a daily basis; that is what we do. That may give the appearance of a day trading service, but we do not employ many strategies that you would call day trading strategies.

Let's say you are worried concerning the markets' prospects over the next couple of months, and think we could be headed for contributory low. As an educated investor, you have choices. You can reduce your exposure to the market by selling any non-long term holdings and sit on some cash while you wait for the market to find its direction. Not necessarily a bad queen as noted in the past. If you think the market is going to tank and you have nice gains, that may be the right surpassing for you. Instead of just sitting it out, however, you can play the drops and the rallies to the upside with shorter term trades, picking your spots depending on what the market is doing. You can play a rally, make some profits, and get out if things turn south. Let's face it, if you are looking to get out in front of any real carnage, you would stay in until things started to look ugly, right? Why not just shorten the window a bit and pick up some easy money? Doesn't mean you have to vicissitude your overall investment strategy, just accustom to fit the market at hand. We have trades we hold for days, we have trades we turn over in a day (truer day trades, but still really not day trade strategies). It all depends upon what we are looking for out of a play: playing an uptrending stock for a few days, riding a leakage for a few days, or playing a technical shudder on a moving fair play for a day or so.

Regardless of the strategy, however, you cannot forget relating to what the market is doing. In 98% of the cases, the market is the final arbitrator of our plays. Unless you are strictly hire purchase to hold for 5 or more years, you have to keep an eye on what the market is doing (and then you should keep an eye on things). Otherwise, you may be involuntarily forced to be quits with your view to long term or be ready to swallow that toad (meaning discontinuance a losing position) and move on. We do have our long term holds that we are not planning on selling (at the moment, anyay (XEL); we forcefully manage even these, however, selling covered calls when they have topped so we can capture returns not only when the stocks appreciates, but when they go down as well. And we will still sell these if they have revolutionary in such a way that they no longer fit our criteria of earnings growth and market leadership. If we are riding a trend and the trend breaks down erstwhile a forecasted split announcement, we seriously look at getting out. That is just good management. With the market still in a state of extreme flux, if a stock starts waffling on you and breaks its trendline, do you want to take the break that the market will hold up long enough for your stock to turn around? We feel it is improve on to have stop losses set or at least have our brokers on inundate with instructions on when to call us or get us out if we are not available. For online trading, we set stop losses on our stocks. It is more difficult for online options trading, as some services do not let you set stops on options trades. Still, there are steps we take whether times are steady or turbulent. When we place an order, we make sure our limit orders (NOT market orders) on buys are confirmed as filled to we log off. We keep tabs on the play several times during the day to know where the market is going that day and if the stock is following the market. If we cannot get to our terminal or log on somewhere, we make sure we have access over the telephone to a live dealer who can execute trades on our account. In this market, we feel that is a necessity. Conditions change. We have to adapt. Some trades we just don't make if we are not going to be around. When times are good such as during a rally, however, we try to make the time, this is our business, and we know many, many of you want to escape and make this your business. Treat it as such, and know the plays you can and cannot get involved in based on the market conditions and your metier to monitor positions at that time.

Keep your head in the game, have a plan, act chiming to your plan.

Someone who reads my blog sent me this email:

Geoff,

Reading your articles. I am confused between standard deviation and coefficient of variation. Standard deviation itself shows how much variation exists from the average then what does coefficient of variation tells us? 

Gurpreet

Standard deviation shows the amount of variation. Not related to anything. The variation coefficient shows the relative amount of variation. The standard deviation related to the mean. You should always relate the standard deviation to the mean. Otherwise, you will think height varies a lot among NBA basketball players because they are all tall while height varies little among children because they are all short.

Standard deviation is not a number that ports well. The variation coefficient is. It’s a way of seeing how big the swings above or below the average have been in terms of the average. Have they been one-third of the average? Or have they been the same size as the average?

For example, two companies can both have a standard deviation of 10% in their operating margins over the last 10 years. If one company has an average operating margin of 10% and the other has an average operating margin of 30% – that same 10% swing is going to feel very different. The variation coefficient tells you this. The standard deviation does not.

I need to make two points here. One, I use stats to describe. Not predict. Two, I use stats to compare. To rank. Different people have different reasons for measuring the things they measure. 

If your goal – like mine – is to describe the past and compare different company’s pasts to each other, the variation coefficient is the right number to use.

Talk to Geoff About Variation

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