Trying To Be A Cool Trader
If you make
a mistake by overreacting to a situation, you will obviously try to
correct it later. When traders and investors overreact to news, a stock’s price
will be pushed to unreasonable levels. Of course, this kind of price behavior
can be sustained only for a short time. As traders, we need to learn to take
advantage of these irrational price movements.
Home Depot (HD)
was upgraded by Lehman Brothers this morning from buy to strong buy. As you can
see on its daily chart below, traders and investors jumped on this news, and the
stock gapped on the open. Obviously, this was unsustainable price movement. At
10:00 a.m., the issue formed a bearish outside bar and began to retreat. Without
question, this outside bar was an excellent sell signal.Â
After declining nearly one point, the stock found a support around yesterday’s
close. At 2:05 p.m., HD gave us the second short-selling signal. The issue broke
down below the support level with increased volume.
Successful traders know how to
control their emotions. Let’s learn to be cool traders.