Up down, up down. What a mess. How in the world can you make a move in
a market like that? Naturally we preach stops to you, but there is
another ingredient that you need to examine. We call it "scaring yourself
out of a trade".
Basically what happens is that we get so wrapped up in analyzing a stock,
a price, a movement, that we forget to take a breath and back away from
the table a bit. Too many times you will analyze yourself right out of a
trade! We know, we have certainly done it many times. How many times have
you sat there, your finger on the button and then talked yourself out of
the trade, only to look a few hours later and found out "Oh no, I should
have made the trade, dang, I knew it was going to go!" Well hindsight is
20/20 right? It certainly is.
So how do we get past that overanalyzing situation? By sticking to the
rules instead of emotions. It's fear that talked you out of that winning
trade and it's fear that will lead you to make more bad trades. Let's
consider this for a minute. Look at GNSS back on 02/07/02. At one
point it was down almost 8 bucks and yes we were short the stock. So,
when it was bouncing we were sweating whether to cover the position,
we had to stop for a minute and say, "hey, our game plan is the market
will do its bounces and sector rotations, but it seems to be trending lower,
let's hang on to it". It worked. Yes we could have been stopped out earlier,
yes it would have made sense. But we overrode the fear factor, and went back
to the "plan".
If you are looking at a stock to buy long, and the day looks okay, and the
stock has just inched up over a resistance level, don't talk yourself out
of the trade because the market is whippy. Yes it may get tossed back in
your face, simply sell it, take the hit and move on. Without a doubt the
ones that do go for 2, 3 or 4 dollars will make you much prouder than the
60 cent hit you took on making the bad play.
The point is, that if you want to sit out a tough market, that is
perfectly okay. In fact more times than not we recommend it. But if you are
going to trade it, by all means, make the trades. Short when they fail
supports and go long on breakouts. Don't overstay your invitation, take
your profits and move on. But talking yourself out of trades that
eventually do go the way you thought they would is a terrible thing to
your self esteem. Believe it!