Do You Have A Story Like This?
It
appears all that was needed to spark a nice little rally over the
last few days was for me to badmouth the market in Wednesday’s column. I blew
that one. It happens. The great thing about the stock market is that it allows
you to change your mind.
Let’s talk about being wrong.Â
I’m wrong a lot. If I could show you all my losing trades, you’d know what I
mean. To make money traders don’t need to understand how to be right all the
time (although that would be nice), but rather how to handle things when you’re
wrong. There are two important steps that must be taken when you are wrong
about a position. The fist step is admitting you are wrong. The second step is
doing something about it. It’s really not hard. Using stops is a great way of
admitting you’re wrong and taking action. Some people have a very difficult
time admitting their mistakes (even to the stock market). It can be a blow to a
person’s ego to do this. If you don’t learn to admit you mistakes, though, you
won’t last long in this game. Here’s a little story to illustrate.
I have a friend who bought some
CMGI back in 2000. CMGI was / is? an internet incubator company. If you
had an idea for a website, these guys would fund you and take you public. When
every company with a .com in their name was going ipo at 2-3 times the offering
price in the late nineties, CMGI was making money hand over fist. My friend
explained to me that it was a great buy because it was almost like buying an
internet mutual fund, and mutual funds don’t ever go down much. (The public’s
thinking has changed a bit in the last 5 years.) Anyway, he was wrong. He
bought it around $130, and it took him a couple of years to admit his mistake.Â
He sold it around $2. Moral of the story — don’t be stubborn. If you’re wrong,
know it and get to cash so you can reevaluate.
So what’s my market opinion
now? Frankly, I’m not entirely sure what to think. I do like the way the
Nasdaq has taken the lead recently, though. Price is a little extended after
the quick runup we’ve just seen. Therefore, waiting for a pullback before
deciding to commit heavily seems prudent. Three of the strongest groups the
last three days have been Semis, Internets, and Biotech, so you may want to look
at those groups for leadership should this rally truly turn into something.
Best of luck with your trading,
Rob
P.S.
Click here for the Hanna ETF Money Flow System.
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