Emotion is the number one reason individual investors struggle in the stock market. Hope, fear, greed, and pride account for most of the causalities in the portfolio. When the market trend changes to the downside, it is pride that prevents many investors from selling losing positions, or even worse, averaging down into those positions because “now they are a bargain.” However a losing position usually only gets worse as it floats downstream. We all know people who have been holding losing stocks for years, “because they are a great company…it’ll come back.” There is no shortage of this kind of behavior in the current market (PFE, BAC, GE, WMT, MSFT, or S see above). It’s funny that if only a chart were consulted, it would have objectively surfaced that mistake, allowing it to be corrected while it was small. These stocks have been underperforming the market for a long time now and numerous sell signals have already been triggered.

 

That’s why using charts and sound rules is the only way to block out these emotions that always seem to fool investors into buying and selling at the wrong time. Making objective decisions based on facts dramatically improve your results in the stock market. Pride, on the other hand, turns small mistakes into much bigger and more expensive ones. As a result, it prevents you from recognizing and learning from mistakes, slowing your growth as a student of the market. I believe the best investors and traders are the most humble. They’ve learned that the only opinion that matters is the Market’s.

 

Best Returns,

 

Scott O'Neil

President, MarketSmith Incorporated

Follow on Twitter: http://twitter.com/#!/WScottONeil