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Is Indecision Hurting Your Trading?

Posted
1/16/2013 10:31:00 AM
By: Teeka Tiwari
Referenced Stocks:PFE;VZ

They say that a coward dies a thousand deaths, the brave but one. 

In the markets cowardice isn’t a bad thing, but its first cousin, indecision is. If cowards die a thousand deaths, then so do indecisive traders.

Nothing can sap your energy faster than the mental tug-of-war that is the hallmark of crippling indecision. When that indecision is bleeding through into your personal life, when you can’t sit down to dinner with your family without being preoccupied with your trades, then you know it’s time to search for a better way.

Lord knows I’ve learned this lesson the hard way. There are huge gaps in my memory of my children’s childhoods because I was so preoccupied with my market-based decisions.  True, I was running a hedge fund, a newsletter service and writing about the market several times a week, but the most mentally tough times for me were when I was faced with market indecision.  That’s why over the years I’ve transitioned much of my trading and investing over to a rules-based-method. I’ve found that I make more money, have more free time and can enjoy the fruits of my labor that much more when I take “me” out of the equation.

What’s the point of having all the money in the world if you can’t be present in the life of the ones that you love the most? I digress. The main reason I am writing on this subject today is because the stock market is incredibly overbought, due for a pullback, BUT, and it’s a big but, it still looks like it wants to trade higher.

What’s a trader/investor to do?

When the market is overbought you are almost always better off waiting for a pullback. This is especially true if you are a long-term investor. There really is no need for you to agonize over an overbought market. If you have a long-term time horizon (10+ years), then it behooves you to wait until stocks are hated again, because they will be!

If you are a short-term trader, then the play is to look for some type of pullback and use this time while you are waiting for a pullback to identify a couple of potential trading candidates.

There are two that are on my radar right now that I’d like to share with you.

Pfizer (PFE)


The drug sector has been red hot over the last year and still looks like it has more to offer. Short-term I would not be a buyer of Pfizer, but on a pull pack to $24.75, that could be a very interesting play.

The company itself needs no introduction. It is one of the world's largest drug companies and sports a 3.6% dividend yield. That’s about 60 basis points above the U.S. 30-Year Government bond. I’d use an entry of $24.75 with a $22.50 stop and a price target $28-$30.

The second stock on my radar has come under some pressure lately with a high profile Wall Street downgrade. UBS downgraded the telecom operator Verizon (VZ) on reduced profit expectations. The truth is the stock had gotten ahead of itself and is probably going to go a little bit lower before becoming a buy.

Verizon (VZ)

 

So I would use an entry of $40.50 with a $39 stop and a $48 price target. Remember, at its current price this stock boasts a very healthy 4.8% dividend yield. And, if the spaghetti hits the fan in the market, these dividend payers will outperform on a relative basis.

However, if neither of these appeal to you, always remember that the decision not to trade is a trading decision. Turning off the trading screen and spending more time with your family until things look better is always a trade that pays off.