Should You Be In Or Out of This Market?

I have a lot of empathy for investors these days.

It feels like we’re in one of those “damned if you do, damned if you don’t” sort of situations.

Stock valuations are high after eight years of bullish trends. But bonds yield next to nothing. And many would argue that the geopolitical climate has never been more fragile and unsettled.

The action-oriented question all investors are struggling with is:

How do we make money, today, while also guarding against an ever-uncertain tomorrow?

My answer to that isn’t sexy. But it IS actionable.

You see, successful investing requires a healthy balance of patience and action.

As I told my Cycle 9 Alert readers recently, Wall Street’s “-isms” can lead you down a bad road if you take the advice to extremes.

For instance, consider these competing nuggets of wisdom:

  • “Cash is a position,” and
  • “You’ve got to be in it to win it.”

The former implies that being out of the market (i.e. “in cash”) is OK. The latter implies that if you aren’t fully invested, somewhere… you aren’t really an investor.

So, which is it?

I’ve learnrned over the years that a “middle-ground” option is usually more favorable to the extremes.

For my Cycle 9 readers, that means staying fully invested most of the time (we adhere to trend-following risk management rules)… keeping a diversified portfolio… and limiting time exposure to any one trade.

It also means we don’t force new trades, just for the sake of trading. As I told readers last week, “Sometimes the best trade is no trade.”

As I said, successful investing requires a healthy balance of patience and action. Waiting patiently for the right opportunity to get into the right investment is almost always rewarded.

But the balance between patience and action doesn’t just apply to the buy side of the equation.

Every good trade is made of a good buy and a good sell.

That’s why you shouldn’t take “hot stock tips” – the guy or gal who gave it to you won’t be around to tell you when to sell, so their advice is useless, at best, or harmful, at worst.

I designed Cycle 9 Alert to give crystal clear buy signals… and a well-defined exit plan, allowing us to balance patience and action.

But the mixed signals from the financial industry don’t stop at when you should or shouldn’t buy into the market. It extends to what you should do with your current positions.

You might have heard the phrase, “You can’t go broke taking profits.”

How about, “Let your profits run”?

So which is it?

I’m sure you can remember a stock you sold for a nice profit… only to see the rally continue on without you. Just as sure as I bet you can remember a stock you sold for a nice profit… very close to its peak.

The point is, the decision to take profits can cut both ways. Sometimes you’re glad you did. Other times you’ll regret it.

Again, I’ve found the best success in a common sense, “middle ground” approach.

My research shows there’s a high-probability, high profit-potential “sweat spot” following my Cycle 9 algorithm’s buy signals. It lasts for two to four months.

After that window of time, the chance of continued success drops to 50/50 – odds we’re happy to leave to other investors.

That’s why our protocol calls for taking half of our profits after one or two months, if we’re able… then closing the full trade after three or four months, regardless of the outcome.

Doing this allows us to routinely capture the “meat” of strongly profitable moves without overstaying our welcome, so to speak.

Essentially, we strike a healthy balance between “you can’t go broke taking profits” and “let your profits run.”

And this approach is my action-oriented answer to the question we began with:

How do we make money, today, while also guarding against an ever-uncertain tomorrow?

Continuing to trade with the still-bullish trend resolves our requirement for patience and bravery, which we need to make profits in risk assets.

Taking our profits (or cutting losses, when occasionally necessary) after two to four months meets our requirement to manage risk and adapt to changing market conditions.

This balance of patience and action has worked out quite well in the six years I’ve been running Cycle 9 Alert.

In early March, for instance, I recommended a bullish play on a European stock ETF (FEZ). Shares of the ETF climbed 15.4% during our three-month holding period, handing us a 213% profit on our options trade.

It was tempting to hold out longer for even bigger gains, but my system said it was time to sell… and so we sold.

Now, almost five months after our exit, shares of FEZ have just drifted sideways.

The point is… we caught the “meat” of the move, locked in our profits, and moved on.

We struck a healthy balance between patience and action.

Adam O’Dell

Editor, Cycle 9 Alert

Follow me on Twitter @InvestWithAdam

Adam O’Dell

Using his perfect blend of technical and fundamental analysis, Adam uncovers investment opportunities that return the maximum profit with minimum risk.