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March 8, 2012

Practice Patience

Tonight's Member Letter departed from the usual, heavy technical banter and took a more philosophical approach regard market approach. The thoughts are worth sharing, I believe, so here is the post in its entirety:

Since the Docfolio is carrying no major positions at the moment, I'd like to speak more generally this evening about market approach. Discussions on comment boards have been loaded the last couple days with traders fretting over whether gold is about to shoot straight back up, whether the stock rally may have further to extend, or whether events in Europe will support or kill the euro. I have one, single view on all these topics: I don't care.

Taking guesses is tempting and perhaps even fun, but as I've noted on many occasions: if I traded every time I had an opinion, I'd go broke. The purpose of a trading system is to provide high-probability setups, and one of the toughest aspects of this job is having the discipline to do nothing in between those setups.

Right now the market needs to work some things out. Gold has a failed daily cycle in hand. Stocks are coming due for an intermediate-degree decline. The dollar most likely launched a new intermediate cycle last week. Until these moves complete or prove to be something else, there will be little to get excited about. The PM complex will certainly launch some counter-trend moves, perhaps even some convincing ones. The stock market is sure to shake bulls and bears alike into a state of confusion. And dollar traders will continue to miss the point by paying more attention to the news than the action.

So I'm going to give everyone a rare piece of direct advice. Take advantage of the current state of the markets to reset your circuits. Relax and try to become a disengaged observer. Let all the suckers try to catch every wiggle while you sit back and hunt the big fish. We have a prime time at hand to develop one of a trader's most valuable skills: patience. Then, when you have a moment of clarity... when that next low-risk entry slaps you in the face... step back in and manage your trade from a point of strength rather than anxiety.


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