An investor can find and research the best stock on the market, one with huge potential but if the general market indices are negative, it will most likely be the wrong time to buy. A stock with tremendous accelerating earnings, rising sales, an up-trending chart pattern and a strong industry group may sound excellent to buy but will mean absolutely nothing if the market is positioned to move in the opposite direction of your expectations. As soon as a stock is purchased, the time comes for an investor to make a decision to hold or to sell. If the position shows a profit, hold as your judgment is correct. If the position shows a loss, cut it quickly and don't rationalize the situation before it doubles in size. Timing will play an important role in determining if you are right or wrong.
Losers must be cut quickly, long before they materialize into enormous financial disasters. They company and stock may not be a loser but rather your timing may be premature to a strong movement, forcing you to sell on a pullback. After a stock is cut from your portfolio, the transaction must be forgotten about and eliminated from your subconscious mind and/or emotional bank. The trade must be studied to capture the true essence of your mistake but the specific security involved must be blocked from any sentimental attachments, allowing you to consider reinstating the position at a higher level. This repurchase may take place immediately or well into the future but the important fact is that you were wrong with the timing on the initial position. The timing, also known as the 'M' in CANSLIM by William O'Neil, may have been wrong even though all fundamental and technical criteria related to the individual stock seemed to be perfect.
A quote from the great Gerald Loeb: "Cutting losses is the one and only rule of the markets that can be taught with the assurance that it is always the correct thing to do."
The wisdom shared by Loeb is easier said than done. Humans like to take profits and hate taking losses or admitting that they were wrong. Pride and ego distorts the clear thinking process that every investor must posses when following clear cut rules that provides insurance to their cash stake. Even tougher, humans refuse to repurchase anything at a higher price that they sold it previously. As Loeb states, only logic, reason, information and experience can be listened to if failure is to be avoided.
It is advisable to make a "test buy" in a shaky or unstable market which allows the investor to assess the general conditions with minimal risk but still maintain an emotional attachment. If the position goes bad, a small loss will be realize but the damages will be limited and the investor's pride and ego can be repaired rather quickly. In a sense, the investor was half right by only initiating a partial position also known as a "test buy". If the market was trending up, a "test buy" would not have to be established as the market direction would have been clear from the beginning.
When it comes to timing, an uneducated investor may realize better gains during a solid bull market based on pure luck than a seasoned investor will return in a sideways or unstable market. Following the trend will be the most successful route to consistent profits over the long haul. By watching the general market indicators, such as price, volume and daily new highs, an investor should know exactly what type of environment they are trading. The most important factor weighing on the stock market is the presence of public psychology, even more so than any fundamentals that the most intelligent academic analyst can compute. Technical analysis along with confirmation of the market trend allows us to see the combined thought process of the general public and tells us if the timing is right to buy or short a specific stock, regardless of the fundamentals.
In conclusion, we must understand that certain situations are only applicable during specific times. Buying leading stocks during a down trend is a sure way to multiple losses that are cut quickly. Shorting stocks during a raging bull is another sure way to financial disaster and margin calls. Don't get discouraged if you take a few small losses consecutively as this is your rules telling you to stay out of the market at this time. The timing may be off even though the stock and research is favorable. Why would you swim upstream to reach your destination if you could jump in a boat and row downstream with the current another day? Before you ever start to immerse yourself into researching a stock to purchase, make sure you know the exact environment of the market and determine if it coincides with your objective. If it doesn't, get ready to get slaughtered, especially if you don't follow strict rules to cut all losses quickly.
Chris Perruna - http://www.marketstockwatch.com
Chris is the founder and president of MarketStockWatch.com, an internet community that teaches you how to invest your money with solid rules. We don't stop at just showing you our daily and weekly screens, we teach you how to make you own screens through education. Through our philosophy, you will be able to create your own methods and styles to become successful.
Wood Dale Chicago prom limo .. Lockport Chicago limo O’HareIs really not as important as to how you invest... Read More
We have two candidates for president that have really different... Read More
When will the stock market stop going down and start... Read More
If you are a baby boomer, time is not on... Read More
Right now there doesn't seem to be any "gold fever".... Read More
If you haven't heard of the technical indicator with the... Read More
Should the market turn against you, it is important that... Read More
What does it mean to short a stock?This means that... Read More
This is a guide to the different types of mutual... Read More
Now that you have some money burning a hole in... Read More
The broker told me not to sell because the mutual... Read More
Just 30 years ago the stock market was a shadow... Read More
Where is the beef? Or maybe it should be where... Read More
There are red lights, green lights, blue lights and spot... Read More
Exchange Traded Funds (ETFs) are growing. Investors are choosing low... Read More
Stock trading can be a very profitable activity. You can... Read More
I feel that an investment strategy in the stock market... Read More
No, this is not a symbol for some Latin number.... Read More
Success in small cap & micro cap stock trading like... Read More
Even if you don't own any of their stock or... Read More
I often hear from people, "I don't trade. I invest.... Read More
Well, not really. What I mean is I don't mind... Read More
You have a lock on your house. You have a... Read More
A recent cartoon in my daily newspaper showed two guys... Read More
The single most expensive stock market trades are those made... Read More
Antigo wedding limo ..You'd have had to be living on a desert island... Read More
Intervention. Now don't let that big word scare you. The... Read More
There can't be many traders who haven't at least considered... Read More
Sometime in the third quarter of 1997, someone told me... Read More
One of the most believed bits of conventional wisdom from... Read More
Wall Street has been preaching the doctrine of Buy and... Read More
Ever done any whitewater rafting or canoeing? Long periods of... Read More
You remember the story about the frog that was put... Read More
Because you don't feel too sure about which stock or... Read More
Four blind men were asked to give a description of... Read More
If you are serious about making and keeping money by... Read More
Outlined below are some of the advantages and disadvantages of... Read More
Are you attracted to the idea of being in control... Read More
Let's go into the details of why non-indexed mutual funds... Read More
When it comes to buying a stock or mutual fund... Read More
Minority Report the movie may not be far off if... Read More
If you were to find that you had some severe... Read More
In November of 2000 when the NASDAQ was trading at... Read More
You have heard about a particular mutual fund from a... Read More
After finding the price of a particular stock, usually the... Read More
Ever have one of those sample boxes of candy? Each... Read More
What does it take to be a stock trader? It... Read More
Have you seen all those big full page ads for... Read More
A stock market index is a statistical measure of changes... Read More
You may have wondered why your mutual funds have been... Read More
Stocks & Mutual Fund |