World economic conditions are tenuous – and that is an optimistic statement. Actually, the economies of the so-called ”developed nations” of the world are trudging along, gasping for breath with each step in an effort to generate even meager growth. And debt is a continuing onerous problem.

Securities markets all over the world are nervous – a herd of cattle just waiting for the next gunshot or bolt of lightning to send them on a stampede.

Never in my long career of market watching has there been a more nervous state of mind for the markets collectively. What this means for the securities trader is there is increased risk – and time plays a big role in risk.

Market price action is dictated by the mass psychology of all market participants. In normal times this psychology results in gentle oscillations of price as result of the ongoing tug of war between the bears and the bulls.

Unfortunately, in the environment we live in today, there is the potential for a fundamental event to occur that really knocks the usually balanced tug of war into a temporary frenzy. The unexpected events are the most dangerous – we do not know when they are going to happen – and when they happen we do not always know what the effect on the market we are trading will be.

Our trading philosophy has changed in an attempt to adapt to the world as it is. Once upon a time – not so very long ago – we could hold a trade overnight with a small stop loss in place and sleep well. No more – market volatility requires too large a stop loss.

We are short term traders – we take what the market is willing to give us during the day and exit. It is a return to our childhood – afraid of the dark – and the unknowns it might contain.

Trading today involves additional risk from those unforeseen fundamental events – and our way of dealing with it is to limit our exposure in every way possible. One way is being in the market for the shortest possible time consistent with a potentially profitable trade. That means short term trading – and stop loss vigilance.

It is not the world we would like – it is just the world we live in.

We must trade accordingly.


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