Why It Pays to Be an Impatient Investor in July

In case you don’t have a calendar handy, tomorrow marks the first trading day of July. If June’s been any indication, the second summer month of 2011 doesn’t bode too well for investors – that’s why you should be an impatient investor in the month ahead…

Normally, patience is a virtue. It pays to be patient when it comes to your family, your friends, or waiting in line at the airport. But take it from me when I say that it doesn’t pay to be patient with your investments this summer.

Instead, you should be ready and willing to gut your portfolio and take losses the very second your open trades show the first signs of weakness. Let me explain:

4.23%… That’s how far the S&P has fallen since the end of April.

Whether you’re a buy-and-hold dividend investor or a technical trader, it doesn’t matter – stocks stink right now. And they have for the last couple of months. From hedge funds to grandma’s investment club, a major chunk of investors have been shoved back to square one for 2011.

Now, that doesn’t mean that everyone’s hurting this month. Even as stocks slid, my Penny Momentum Trader readers were able to cash in on large percentage gains on stocks like Zale Corp. and Zagg. But that success has come from being tactical and following our STORM System, not from holding on for dear life as stocks sold off.

So, while patience is a virtue when waiting for setups to unfold, being too patient is a major liability when stocks are writhing around. Instead, be an impatient investor in this market.

Being an impatient investor means that you’re ready to snatch up gains early when stocks show signs of weakness, and you’re eager to cut losses if a trade falls below a technical stop-loss level.

To be an impatient investor, all you’ve got to do is follow two simple rules:

1. Set Your Stops and Price Targets Before You Trade

Impatient traders know the exact prices where their patience wears thin – either cashing in gains, or taking small losses when those prices get triggered. Picking stop loss and target prices isn’t a seat-of-your-pants exercise. It’s something you need to do first – before you commit to a trade financially and emotionally.

Set your “impatient” prices just below technically significant levels in the stock you’re trading. That way, you’re taking profits as shares reach for your target without getting whipsawed out of positions left and right.

2. Re-Evaluate After Hours

Target and stop loss prices aren’t set in stone. You’ll need to re-evaluate whether the prices in your head are still valid – or if you should change your outlook on a stock. Never do that during trading hours.

It’s all too easy to get emotionally caught up in a day’s price action. That’s why you should always wait until the market has closed before you adjust your strategy for a stock. And when a stop triggers, honor it. If you get too caught up in “what-ifs”, set real hard stops to ensure that you’re remaining disciplined.

And by all means – if you’re lacking the experience to make good trading decisions, paper trade until you’re comfortable in this kind of market. Even the professionals are finding this environment challenging right now…

The Art of Impatience

Right now, the S&P 500 is sitting at a fairly critical price level. The index (which we use as a proxy for the market as a whole) is teetering on the brink of a very bearish technical signal – and you’d better believe that investors are taking note right now.

While early signs are pointing to a bullish resolution to the S&P in the near-term, that’s mostly speculation at this point.

Either way, by being an impatient investor in this market, you’ll limit risk and be better prepared to take advantage when stocks become more directional.