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.
whole house cleaning Deerfield ..Even if you don't own any of their stock or... Read More
Stock trading can be a very profitable activity. You can... Read More
Exchange Traded Funds (ETFs) are a group of passive index... Read More
The Surgeon General of the United States says that smoking... Read More
I go to the Money Show every year to visit... Read More
You'd have had to be living on a desert island... Read More
Options trading can increase the profits you make when trading... Read More
It takes a total mental commitment to the task. It... Read More
To begin, you might look at playing the stock market... Read More
Ever have one of those sample boxes of candy? Each... Read More
Over the past few months, several investment professionals have brought... Read More
Let's say you are interested in this one company. You... Read More
Before you embark upon a journey of trading stocks or... Read More
If you haven't heard of the technical indicator with the... Read More
What are you thinking when it comes to your no... Read More
Let's first define insanity. It is doing the same thing... Read More
Every day I see in the financial section of newspapers... Read More
As an investor you will want to check out any... Read More
At some time in your life you have been on... Read More
Before we get into all the good news out there,... Read More
The basis of diminishing return discussions surround such simple notions;... Read More
There can't be many traders who haven't at least considered... Read More
Wall Street has been preaching for years and years to... Read More
This is a guide to the different types of mutual... Read More
Have you seen all those big full page ads for... Read More
home cleaning services Des Plaines ..Let's first define insanity. It is doing the same thing... Read More
Wall Street has been preaching the doctrine of Buy and... Read More
Let's hope you did not have any of the Enron... Read More
Do you own any mutual funds? In an IRA or... Read More
Right now there doesn't seem to be any "gold fever".... Read More
How can you dispel an illusion unless you look directly... Read More
The date October 13, 2000 will forever be embedded in... Read More
Everybody is riding the Wall Street Roller coaster. Even if... Read More
Maximizing a stock market investmentThere are several factors an investor... Read More
There are many important things you need to know to... Read More
I was devastated!I just couldn't believe it. I was 10... Read More
What! Me worry?Many of you remember the cover of MAD... Read More
We all know the expression, "My country, right or wrong",... Read More
Spread trading is a technique that can be used to... Read More
Stock trading remains a very competitive field and the stock... Read More
Index Fund Trading can be one of the most profitable...or... Read More
If you're like many investors who squander those small dividend... Read More
TOO OFTEN, INVESTORS SIMPLY CHOOSE TO follow the crowd. This... Read More
This is a rather simple strategy with which I am... Read More
The trash business in its efforts to cook their books... Read More
I would like to share with the reader an article... Read More
The Dow Theorycharles h. dowcharles h.... Read More
Because you don't feel too sure about which stock or... Read More
I was recently interviewed for a press release through a... Read More
Every year I go to the Money Show in Orlando,... Read More
Stocks & Mutual Fund |