The stock market is a constantly changing beast that loves to cause the greatest pain to the largest number of participants possible. What I mean by that is if the majority of investors are positioned bearishly, the market will likely head higher and force them to cover. Conversely, those that are overly bullish near the top are likely to have their own pound of flesh taken by a turning of the tide lower.

So how do you protect yourself from entering the market at an inopportune time?

The reality is that no one knows what is going to happen from one day to the next. This is especially true in the age of lightning fast information exchange and globally interconnected markets. The overnight headline risk alone is something that you can't foresee or control.   Once you succumb to that reality, you can focus on the finer points of your portfolio that you can control – i.e. position size, stop losses, asset allocation, etc…

The Big Picture

Whenever you are looking to establish a new position in stocks, bonds or commodities, it always helps to take a moment to step back and evaluate the big picture. Ask yourself these questions:

The answers to these questions will ultimately help determine if the investment is suitable for your portfolio and at a potential entry location. Keep in mind that a counterintuitive mindset will help you immensely when picking an opportune spot to trade. You probably won't catch it perfectly, but you can greatly enhance your chances of a successful outcome by paying attention to the big picture.