How to Buy at a Market High Without Losing Your Shorts

NEW YORK (TheStreet) -- Isn't it comforting to know we don't need to worry about the government shutting down or how high the debt ceiling can rise for three whole months?

Mr. Market saw this outcome for almost a week before the "all clear" signal was sent forth. That's why the S&P 500 was at a new 52-week high as of Thursday.

Many Mom and Pop investors and traders are wondering (and I speak with some of them daily) if it is too late to fish in the high tides of the oceanic U.S. stock market. After all, the U.S. stock market has risen nearly 30% in less than a year. How high can it go, and will it take a big dump first?

All I can say is, as Jim Cramer has often said, "Don't fight the Fed" and "The trend is our friend." No one knows for sure where the market averages will be tomorrow or next week. We take the markets one day at a time and look to save money and make profits.

Those of us who follow Cramer's charitable portfolio, Action Alert PLUS, wish we'd followed some of the recent stock recommendations that he and co-manager Stephanie Link made before this fantastic leg-up in the markets.

On Monday, they bought shares of Noble Energy ( NBL) at $67.06.

Noble Energy is an oil and gas producer in the U.S., Equatorial Guinea and Israel. Fifty-seven percent of its production is U.S.-based, and 31% is derived from North American natural gas. It's one of the largest energy exploration-and- production companies in the world.

As I write, shares of NBL are trading up over 5% and intra-day hit a 52-week high of $70.78. This is just one example of some of the gainers Jim and Stephanie have experienced over the past week, when many investors were like deer in the headlights and unwilling to invest until...

So what can investors and traders do when the markets are exuberant?

First, you may want to sell into this if you are over-exposed to the market. You should know the appropriate asset-allocation strategy that's best for you and also have cash to buy the dips.

Second, as Jim Cramer often reminds viewers on Mad Money, you can "scale into" positions you think are still attractive and have upside potential. That means you buy a little at a time, almost hoping the market will correct so you can buy more at lower prices.

This is a kind of "dollar-cost-averaging" approach that can help you build a position in a great company like Microsoft ( MSFT), even after it has moved up nicely over the last five trading sessions.

Third, and as important as any wise investment advice, practice "position sizing" and before you buy any position know precisely what you'll do if the position drops in value to the point where you experience an unacceptable loss.

In other words, use some kind of a trailing stop loss alert system that tells you (and not the exchanges' market makers) that you need to follow through on your discipline to cut your losers and let your winners run.

To become familiar with what a trailing stop loss alert is and how it can empower you to wade carefully in the market waters, experiment with a trailing stop loss calculator.

Here's a look at how NBL and MSFT have performed over the past three months. Notice that the daily price range hasn't already dramatically broken to the upside or to the downside yet.

NBL Chart NBL data by YCharts

With the next Fed meeting coming up before the end of this month and with the stock market in the thick of earnings season, there will be plenty of angst and surprises left to move the markets.

You don't have to miss out on the action if you have an investment or trading plan that protects you from emotions that usually keep us stuck in the quicksand of indecisiveness.

We've witnessed a period of dramatic government gridlock and ominous, stormy "seas" that the undisciplined investor/trader could have used as a powerful excuse to keep all ships in port.

If you did nothing the past two weeks because you don't have some reliable disciplines or strategies with which to enter and exit the markets, hopefully this article will empower you for next time.

Becoming a profitable investor/trader is a learning experience that takes time. If you're fortunate enough to have mentors like Jim Cramer and Stephanie Link, and you use an alert system like TradeStops, you'll be better equipped to overcome your fears and greed in favor of decisive, proactive forward steps.

As Kenny Rogers song reminded us in "The Gambler," "You've gotta know when to hold them, know when to fold them, know when to walk away and know when to run...You never count your money while you're sitting at the table, they'll be time enough for counting when the dealing's done."

At the time of publication the author is long MSFT.


This article was written by an independent contributor, separate from TheStreet's regular news coverage.

Marc Courtenay is the founder and owner of Advanced Investor Technologies, LLC, as well as the publisher and editor of www.ChecktheMarkets.com.

Courtenay holds a Master's of Science degree in Psychology from California Polytechnic State University, and is a former senior vice-president of Investments for two major brokerage firms. He's been a fiercely independent investment "investigator" and a consulting contributor to the investment publishing world for over 30 years. In addition to his role as an investment publisher and analyst, he serves as a marketing consultant to the investment media industries.

In his role as a financial editor, he specializes in unique investment strategies, overlooked stock investments, energy and resource companies, precious metals, emerging growth companies, the prudent use of option strategies,real estate related opportunities,wealth preservation, money-saving offers, risk management, tax issues, as well as "the psychology of investing". Because of his training and background in Clinical Counseling and Psychology, he enjoys writing about investor behavior, the ¿herd mentality, how to turn investment mistakes into investment breakthroughs and the stock market's behavioral trends and patterns.

More from Opinion

Why Google's Search Momentum Won't Be Badly Hurt by New EU Rules

Why Google's Search Momentum Won't Be Badly Hurt by New EU Rules

Flashback Friday: Amazon, Chip Stocks, Memorial Day

Flashback Friday: Amazon, Chip Stocks, Memorial Day

Time to Talk Tesla: What Happened This Week, Elon?

Time to Talk Tesla: What Happened This Week, Elon?

Apple Needs to Figure Out Its Self-Driving Vehicle Strategy

Apple Needs to Figure Out Its Self-Driving Vehicle Strategy

Throwback Thursday: Tesla, Chip Stocks, TheStreet's Picks

Throwback Thursday: Tesla, Chip Stocks, TheStreet's Picks