Historically, the third quarter in the stock market tends to be less active than Q1, Q2, and Q4. So far, this summer has proven to be just that—volatile and uninteresting. 

Investors should remember not to overtrade during choppy markets. Overtrading can lead to an increased portfolio turnover ratio. The result of this could be increasing risk without an additional unit of alpha. Essentially, the more you trade, the more you have to be correct on your positions, which is not an easy feat during difficult periods.

If you find yourself constantly trading in-and-out of positions, you should either readjust your stop loss or simply generate higher yielding conviction ideas. In-house at MarketSmith, we like to start our idea generation process with the Growth 250 report.

One way to avoid overtrading in lighter market periods is to have smaller positions where you are comfortable with wider price moves. Investors can also consider trafficking in large-cap stocks that tend to be less volatile than medium or small cap stocks.

Moreover, until we receive a clear directional move in the market, it’s best for prudent investors to remain light, but prepared for the next leg up. One way to be prepared is to spot stocks showing unusual relative strength compared to the market. You can find these types of stocks in the MarketSmith Growth 250 “RS Line New Highs” list.

As always, if you have any questions please contact your product coach at (800)-424-9033 or email us at reachus@MarketSmith.com.


Best returns,

The MarketSmith Team
Jason Thomson