Stock Trading: Let Strategy, Not Emotion, Drive Your Trading Decisions
In yesterday’s stock trading column, I reminded traders of the importance of staying disciplined when markets – and investor and trader emotions – were at extreme levels.
While different stock traders have different methodologies, my concern yesterday was that traders who buy weakness and sell strength be sure to follow their trading discipline when it comes to the latter especially.
When stocks have pulled back for day after day, there is a temptation for some traders to “stick around” and hope the market will “give you” a few more cents to the upside.
This may work out with any individual trade. But over the long term, this is the road to trading ruin. If you are trading a stock strategy that you trust, one that you have relied on for months or years, then it is vital to avoid making changes to your trading rules when emotions – not data or testing or careful analysis and review – are doing the talking.
Materials Lead the Way Up … And Down: 7 Stocks You Need to Know for Thursday
Many of the stock making gains on Tuesday were in full pullback mode on Wednesday. This included many industrial and materials stocks like ^DOW^ and Alcoa ^AA^. Both stocks pulled back by well over 2% ahead of Thursday’s session.
Sellers were also on the offensive in oil stocks, sending shares of ^BHI^ and ^WMB^ lower for a third session out of the past four.
What’s up on a down day?
Shares of ^NVLS^ (above) gained more than 3% to close at their highest level in more than a week. The stock is up 6% from its last oversold close two days ago.
Set to announce quarterly earnings on Thursday is ^KR^. Shares of KR have pulled back for a third day out of the past four. Meanwhile, closing at its lowest level since February and down more than 1% are shares of ^WFM^.
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David Penn is Editor in Chief of TradingMarkets.com