Bob Byrne likes to keep it simple.
In this week’s TheStreet Stocks & Markets Podcast, the veteran trader and TheStreet Pro contributor shared his thoughts with Chris Versace, lead portfolio manager for TheStreet Pro Portfolio, about investing strategy, with a particular focus on navigating a volatile stock market.
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“I am a very, very basic, basic trader,” Byrne said. “I don’t use a bunch of indicators…it doesn’t have to be complicated.”
Byrne, who describes himself as a long-term investor and short-term swing trader, If says that if you insist on indicators, he suggests some moving averages, which traders use to smooth out price fluctuations and identify trends in an asset’s price activity.
“If you’re a short term trader, something like a five- or eight-period simple moving average and a 20- or 21-day,” he said.
TheStreet Pro’s Bob Byrne has sage advice for traders.
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Investor says ‘there’s no clarity’ in the market
As for longer-term investors, Byrne recalled some advice he had heard: Good things tend to happen above a 200-day moving average and bad things tend to happen under it.
“It’s a really simple way to look at things,” he explained. “I’m not saying you’ve got to bail on everything under a 200-day moving average. And I’m not saying buy it above it. But it’s a very good litmus test to begin.”
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Versace asked Byrne how he was navigating the market in the near term.
“If there’s not a lot of volatility, I’m not trading it,” he said. “In my 20 years of day trading, there were two groups of people. There were the people that traded in the first two hours and maybe the last 90 minutes of the day. They typically made money.”
“Then there were the people that traded all day, every day.”
When you take that approach, he warned, “you’re going to make mistakes.”
“You’re going to see patterns where patterns don’t exist,” he said. “I think that’s what we are right now in the market as well. When a market compresses back down, there’s not a lot of sense to most strategies. If you have a strategy that works in it, you can see it in your own results.”
Most people need volatility and price moves, Byrne said.
“I need it,” he said. “I think volatility is going to be back in another week or two. I don’t know.”
“Why that time frame?” Versace asked.
“We’ve rebounded sharply,” Byrne said. “I don’t know if we’re in a bear market, but we’re certainly in a bear pulse, if you will. What’s been settled? There’s no clarity.”
Trader: Pain vs. pleasure principle
Versace said that “for folks, it’s really easy to deal with stocks that are doing well for them. But in a challenging market, how do you handle? I guess the only way to call it is a call gone wrong?”
Byrne’s investing advice is straightforward: If you buy something without knowing where you’re wrong and where you’re out, you shouldn’t have bought it in the first place.
“And I think that kind of realization comes from getting stung a whole bunch of times when you start out as a trader,” he said. “When I started, I was in college and I had a string of probably eight, nine months where I was doing great.”
“I thought I knew everything,” he added. “It turned out I didn’t know anything and ended up losing half my account in virtually one trade. I have never made that mistake again.”
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The fund manager and the trader make clear: It’s about discipline and managing risk.
Byrne cited the poker player’s “chip and a chair” motto, which says that as long as you have a chip and a seat at the table, you’re still in the game.
“Don’t ever make a bet that pushes you out of the game, both from a monetary standpoint and a psychological standpoint,” he said. “How do you react to things? For me personally, I feel far more pain when I lose than pleasure when I win.”
“It helps me avoid a lot of situations that I’ll miss out on opportunities. So, if I can’t identify precisely where I believe I’m wrong based on why I’m getting in, I don’t take the trade.”
If you have a longer term position, Byrne said, you have to ask deeper questions.
“Why is the volatility there?” he asked. “And if the volatility is there because it has a high beta, then you just have to be willing to navigate that.”
A high beta stock is one that moves more sharply than a broad-market index like the S&P 500.
Versace says that Byrne is effectively saying that if you’re trading, “you really need to check your emotions at the door.”
“You can’t have any. It’s pretty easy,” Byrne says, adding that a trader’s job is “to identify when something’s not working and get out. You can always get back in … unless you’re moving, in some cases, billions of dollars. It’s the greatest ability of the individual investor or traders that you can get in and out in a split second.”
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