Why I QUIT Investing

I have a special note for you today.

But first, let’s take a look at the markets…

As I type this note, stocks are attempting to post a modest bounce following another rough trading week.

But the rally isn’t drumming up too much excitement. In fact, most stocks are sinking as the September struggle remains in full effect.

Friday’s action was especially telling. No buyers showed up late in the day despite oversold conditions. When the dust settled, the S&P finished the week down nearly 3%, marking its third consecutive week in the red.

The market weakness we’ve seen this month shouldn’t surprise anyone who’s paid close attention to the averages this year. Remember, stocks don’t move higher in a straight line. Pullbacks and corrections are not only normal, but necessary. If anything, you should feel uneasy if the averages don’t retreat at least 5 – 10% a couple times a year.

We can study seasonal trends to try to determine when the market will hit these rough patches. For instance, the S&P tends to flame out around the end of June during a typical pre-election year, and remain in a choppy range until a year-end push.

The averages are following this pre-election year script, with the minor exception of a strong summer rally that peaked at the end of July. August is generally a weaker performing month (check). Then, September and October get a little hairy (double check). If this pre-election year correlation continues, we can look forward to a final push higher into December.

But for now, all eyes are on the averages for a bounce.

Unfortunately, it might not be the bounce the bulls have been waiting for…

In fact, we might see a weak relief rally that leads to additional downside into October.

Regardless, the next market bounce will offer important information related to the market’s health – and how I’ll be looking to trade heading into the fourth quarter.

But I don’t care if the market rises or falls this week, next week, or next year.

This is simply information I can use to plan and execute my trading plan.

What is a Trader?

Trading was much easier during the first half of the year. Stocks were in rally mode and the gains piled up quickly.

Now that the market’s getting a little dicey, I figured it’s a good time to take a step back and re-introduce myself.

My name is Greg Guenthner, but everyone around here calls me Gunner. I’ve been swimming in the shark infested waters that we call the markets for nearly two decades.

I considered myself an “investor” in the early days of my career. But the Great Financial Crisis convinced me to master the true forces powering the markets, sparking a quest that led me to classical charting, technical analysis, and showing anyone who will listen how they can learn to think like a trader… and change their life.

But what is a trader?

You might think of a caffeine-addled maniac, frantically mashing his keyboard as he stares at a wall of computer monitors. But this couldn’t be further from the truth. I love markets because of the freedom it offers to anyone who desires to learn and trade. Sitting at a computer all day doesn’t sound like freedom to me…

Truth is, you don’t have to tie yourself to a glowing screen in a dark room to trade. The vast majority of successful traders in the long-term aren’t even daytraders. In fact, some of the most successful traders I know are only buying or selling a couple times a week – sometimes even less.

Trading isn’t about timeframes. It’s about mindset.

This doesn’t mean you have to bury your head in the sand and avoid any type of news or discussion about economics, the Fed, valuations, or any other market narratives floating around. Quite the opposite! I’m actively engaged with market news and events. And just like any other human, I have my own thoughts and opinions on these subjects.

But because I think like a trader, I’ve learned to compartmentalize this information and only trade what’s happening in front of my face.

Riding Waves 

I don’t care if the market is trending higher or lower. I’m not a bull or a bear. I’m simply taking advantage of opportunities when they present themselves – long or short.

Over at The Trading Desk, we surfed big rallies all summer. But when the market began to roll over in early September, we traded our longs for shorts. With the exception of a quick play on the uranium breakout, we’ve been loading up on puts all month.

Right now, we have open puts on two slumping tech stocks – and we just booked triple-digit gains on a bearish crypto miner bet. While most investors are anxiously watching their long-term holdings give back their summer gains, we’re trading the downside action and booking profits.

The market weakness we’re seeing right now might turn into a bigger correction. Or, the bulls might step in and save the day. We just don’t know. No one does!

Remember, there were plenty of good reasons to avoid stocks back in January, just as there were legitimate reasons for bulls to hang onto their stocks back in August.

But if you’re thinking like a trader, you’ve prepared for every scenario. You took some profits on your longer-term positions in July and August when the market was running hot. You honored your stop losses on the trades that didn’t work out. And you continue to let price dictate your decisions.

The result is a trading account that consistently grows – whether the market is trending up, down, or sideways.

I’ll write more about these ideas next week…

In the meantime, hit me up with your most pressing trading questions by emailing me here.

The Daily Reckoning