Monday, May 21, 2012

Going Both Ways - Bull and Bear

Until the market trend is more stable, I plan to purchase long and sell short positions in our taxable trading accounts.  This allows me to purchase stocks of good companies while the market declines and offset further drops in price with the short positions.

This approach has worked fairly well since I started on May 2, 2012 since the market has been falling during that time.  While the market has declined significantly, the long-short portfolio has decline much less.  However, in today's up market, the portfolio continued to fall as the gains the short positions were greater than gains in the long positions.  

At this point, I will proceed with one of two options:
  • Close out short positions.  If the short positions continue to rally with the same strength as today, I will cover my shorts and just have long positions.   If the market has bottomed, then I will want to start increasing long position since most stocks benefit when the market rises.

  • Take more short positions. Today's rally could be a short term bounce, and the market decline may continue later in the week.  In this case, I will want to short more stocks to benefit from a future market decline.
  • Today, I didn't take any action.  For now, I want to wait a couple more days to decide which option to take.

    For more on Strategies and Plans Ideas, check back every Monday for a new segment.

    This is not financial or investing advice. Please consult a professional advisor.

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