Here’s some quotes from Jesse Livermore that I think hit some key points on why being in the market 100% of the time is a bad idea:
“First, do not be invested in the market all the time. There are many times when I have been completely in cash, especially when I was unsure of the direction of the market and waiting for a confirmation of the next move….Second, it is the change in the major trend that hurts most speculators.”
From a Stage Analysis perspective if you see no sectors leading the market and few leading stocks breaking out of Stage 1 bases on explosive volume, why be in the market? If you’re in the market at that point you are more in there for action than taking proper trading setups. And changes in trend, especially choppy sideways consolidations, can cost a lot of profits and confidence if you try and fight your way through them.
“Always remember; you can win a horse race, but you can’t beat the races. You can win on a stock, but you cannot beat Wall Street all the time. Nobody can.”
If the market went straight up all the time then it would be easy to beat it 100% of the time by buying the best stocks. But unfortunately we get either sideways periods or downward movements in stock prices. Its better to try and win the races that give you proper setups, not every race no matter the setup.
“Remember this: When you are doing nothing, those speculators who feel they must trade day in and day out, are laying the foundation for your next venture. You will reap benefits from their mistakes.”
Bear markets (Stage 4) and sideways consolidations (Stage 1) lay the foundation for powerful advances (Stage 2). By letting Stage 4 and Stage 1 take place, you let the market pave the way for the time to capitalize on Stage 2.
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