One of the most important things about trading is the management of the risk on your trade positions. Let’s face it, if the market just doesn’t go anywhere while you are in a position, you just cannot gain from it. So, depending on market volatility, you really cannot control to any degree what your gains will be. You can, however manage what your losses can be to some degree with good risk management techniques.
I like volatility for several reasons. For entry and exit points, volatility increases our potential return. No, I do not advocate day trading. No, I do not recommend buying stock A at $ 30 and selling it at $ 31 just because it has risen in value. We should try to be investors with long term horizon of at least one year.
The last thing to check is a little more difficult to pinpoint. A high dividend yield normally indicates that the stock price of a company is relatively cheap. This would normally be the result of negative behavioral finance. Perhaps there’s been a profit warning. Or industry the business operates in might be in decline. Whatever the reason, you need to make it your mission to find out why the stock is cheap. Being armed with this information enables you to make a much more informed decision.
A crystal ball, perhaps. Or tomorrow’s newspaper, just like on the television show “Early Edition.” You would be able to know what the masses were going to do tomorrow. You could anticipate their every move with unfailing accuracy.
It is true that the crowd is often right… until a turning point occurs. But when the markets turn, the crowd holds on, often until most if not all their gains have evaporated.
I developed an innumerable number of trading systems. They would work well with one stock or index, but not others. They would work well over one period of time, but not others. Each system depended on a number of parameters such as the length of various moving averages or the number of standard deviations required for an entry or exit. Finding the unique set of parameters is called optimization.
The base point is this: if you’re pondering trading the S&P E-minis or any other index, for what it’s worth, you have to be sure you have beneficial trading indicators and S&P E-mini trading programme that you trust in as this will be needed to overcome in your trading game.