Starting 2007 Off Right

The holiday season lets traders catch up on their rest and spend quality time with their families. But the January markets are just around the corner, and we need to be prepared for their many challenges. In this regard, let's commit ourselves to better performance in 2007 and make sure we hit a few tough pitches out of the park.

2006 yielded mixed results for the trading community. Many folks were caught too long during the first-half selloff and then didn't adjust quickly enough when the summer rally began. Indeed, the fourth quarter has been a serious profit-maker, but the early damage took its toll on many equity accounts. Let's do things a little differently next year.

First off, remember it's our job to make money whether the markets are rising or falling. Undoubtedly, the next big and unexpected downdraft is just around the corner, waiting to catch sleeping traders by surprise. So pay close attention to price action now, and don't be a sucker when the market takes a dive.

Trust your own opinion in 2007, and don't be swayed by folks you think are smarter than you. Everyone in the financial markets has hidden motives and is wrong on a regular basis. Remember, it's your money at stake, not theirs. In other words, listen to the beat of your own drummer, and risk your cash accordingly.

Don't believe in balance sheets or price charts. Play the numbers, but realize they're being painted and manipulated for your consumption. Always trust your intuition, and respect the little voice that tells you what to do and what to avoid. That's the voice of the winner trying to get into your thick head.

Forget the Holy Grail because it doesn't exist. The guys and gals that make money in this market earn every penny through hard work, clear heads and well-applied capital. There are no shortcuts, so stop looking for one. The only secret formula is solid risk management. That's where the trading edge you think doesn't exist is hiding right now.

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At the time of publication, Farley had no positions in the stocks mentioned, although holdings can change at any time.

Alan Farley is a professional trader and author of The Master Swing Trader. Farley also runs a Web site called HardRightEdge.com, an online resource for trading education, technical analysis and short-term investment strategies. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Farley appreciates your feedback; click here to send him an email. Also, click here to sign up for Farley's premium subscription product The Daily Swing Trade brought to you exclusively by TheStreet.com.

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