Federal Reserve chairman Bernanke told congress this last week that the economy will show signs of recovery in 2010. The old rule of thumb is to start investing in the stock market half way through a recession. For the short term trader a market recovery will likely mean days of higher volume, more liquidity with tighter spreads, and very local demand for recovering stocks.

If you believe Chairman Bernanke and others, the US economy will “show signs of recovery” by 2010. As the market always anticipates, we will see investors start to re-enter the market by mid year. More investors will increase volume and probably improve liquidity with tighter spreads. On the other hand there may be a lot of early volatility as investors place their bets on those stocks taking advantage of opportunities created by stimulus money or infrastructure improvement monies.

As we have said before on these pages, knowing where the action is likely to be will help you be there when it happens. Then the three rules will apply. Have a plan. Practice your plan. Stick to your plan.

How do you trade? Do you scalp when the market has lots of volume and lots of momentum. Then you only trade in high volume and high momentum. Right?

Do you trade market turnarounds? Have you done your homework on the particular part of the market you are trading? Do you have a fair idea of what the market is up to? Have you practiced sim trading the situations where you want to make your money? Then you will wait for the correct market move and correct trade station indicators and follow your plan to make money. Right?

Do you trade predictable daily moves in a particular stock? Have you kept up on that stock’s basics? You have practiced you sim trading, right?

So you only trade with momentum. Have you picked the market sector where you can expect to see movement? Are you clear on your stop loss strategy? Then you are ready. Right?

We talk a lot on these pages about psychology. Everyone wants the country to do better. Everyone wants to see the market recover. Everyone wants to make money in the process. Patience and practice are probably the best bets for now. When things start to move in a few months a well thought out strategy will be necessary. Accurate execution of that strategy will be critical. That is why sim (simulation) trading is important. Practice, practice, practice and you will be ready for trading when the market starts anticipating recovery.

In many ways day trading is a performance art. The great actor or actress, world class figure skater, or concert violinist learns their art, refines their skills, and practices every day. No matter how knowledgeable that person is the proof of their art is still in the performance. Although these folks may practice all day long none of them performs all day long. They take a break. Wise advice for day traders is to trade when the conditions are right and do research and/or sim trading when conditions are not right. Doing this will have you trading when you are fresh. Doing this will keep you away from trading when you are tired and liable to make costly mistakes.

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