That feeling of doom….II
Last Thursday, on these very pages, I stuck my neck and and pretty much forecasted a selloff in the market. Since then? Dow and S&P both UP over 2%. Some doom.
Of course, I’ve been in this situation before and so will you: the market moves completely and directly OPPOSITE of how you’re trading. You not only look bad (if you told anyone), but lose money.
You then face the hardest decision traders ever face. Do you stick to your guns or admit you were wrong? And, of coure, here’s where it gets tricky. Throw in the towel too early and you end up missing a good trade. Throw it in too late and you end up taking a pasting.
Now while the latter is the path most traders take — it’s HARD to admit you’re wrong! — you do sometimes have to hang in there even if the trade goes against you for a bit.
How to know which side to choose? I use a simple test: looking at the charts, I objectively decide if I’d want to be long or short. If the answer is opposite my current position, I close the trade. In fact, if it’s so obvious I want to be on the other side, I’ll close the trade and reverse positions.
Really, it’s as simple as that, IF you can take even a tiny step away from your current posture and objectively evaluate things. In my experience, though, it’s not that hard. Usually in your gut you know when you’re wrong. You just have to listen.
As for me right now? I have to admit that things have perked up on the long side. However, I only used my negativity to sell my existing longs, not go short. Am I confident enough to start buying? For the Dow stuff, yes. (see my Fox column: http://www.foxbusiness.com/investing/2011/10/21/)
For most everything else? Think I’ll wait a bit….