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Today, I'd like to address what to do when you see the market up one day and then start to feel the panic when the next is a distribution day. I've found, to take the sage advise that Bill has written, and that Scott has video'd within the topic of emotions, to be very beneficial.
I've made my mistakes and sense that those emotion of "fear", "greed", "pride", and "hope" can cost us dearly if not kept in check. If so, they can do the opposite and add the confidence needed to act appropriately. I do like the idea of consulting a chart. In order to do so, I sense that you have to understand the differing levels of support and resistance. There are many ways to learn these through various reference books. ( I'll discuss some of these at another time if you like) When consulting the chart you can quickly discern if the stock is acting appropriately or not. Only then make your decision. Don't do it when one of those emotions is clouding reality. I've found that when you need to act, you do so with sound commitment. If you waiver, you're just not yet understanding the points that need to be understood. Yet, that's good. That's great. It's so, because that should send you a signal that more is needed on your behalf.
You'll recall that we buy on many factors. Of those, we categorize them here as fundamentals and technicals. Remember the rule, we only sell on technicals.
I've also found that I'm not one with a crystal ball. What I have been able to do is to understand many stocks and when one approaches a buy point that has all of the ingredients that we've learned about, I form a plan. Without one, I personally think that it's like a flag flapping in the breeze. So before you buy, I would suggest that you know enough to know what the exit plan is. If the stock performs, you'll know it along the way and modify your plan. If the stock does not, you too will know how to revise down.
Let me provide you with an example please. Bring up ULTA on a weekly chart (I do not own any of this currently) but I did. I entered it in April of '09. I did so, because I liked what I saw. I started to read about this company. I began to dig. I visited a store. I was convinced that something good was happening. Last December, I shared this one with our meet up group. They thought "lipstick" and stuff like that ? All the time, I was building a position from April '09 to Dec '09. All the time, I had a plan for exiting. With each buy, I had known if it did "this" then I'd do "that". Well, I exited in May of '10 for a bit. and looks like for me, that that was fine. After that time it was pretty horizontal. Along the way up, I shared with my meet up group that this was a 49 to 54 dollar stock. They thought I was crazy. Recently, this stock has come out of DB and not done what I thought. I was thinking that it was going to undercut the previous base and then base again. Because it didn't undercut, I didn't buy back... but it's still not to say that it won't go to my predicted values within the next 6 months, or to say that I won't buy in again at some level. The real point that I'm attempting to make, is that you need to have a plan to exit before you buy.
So, when you're not sure. Learn more. IBD has an extensive learning section that you can learn from. Query topics and find those that need reinforcement. I've found everyone employed there is very helpful if you can't find what you need.
Market Smith's section is developing and in my estimation is going to be a real winner.
-Hope you enjoyed, respond if you wish.
Thanks for taking the time to prepare a great post. I am new to MarketSmith and learning a lot from all the blogs and forums. Keep up the great work!
My pleasure. I truly think that you can utilize the education part of the IBD/MarketSmith to enhance your performance as well as how you view these situations. I'm very pleased that you were able to benefit from what I wrote. Periodically, I think of some good experiences as well as some real bone head things that I've experienced . I'll perhaps do a write up on them.
Thanks again for the feedback,
Very nice commentary. This is a downfall for me: not keeping my ballast in heavy seas.
What are the resources you'd suggest for learning support and resistance ?
Your going into the store to get a feel for the company is one I've used often. My difficulty is that I live way out on the prairie, so need to make a special effort to set aside time for that when visiting family in the metro areas. (My spouse never quite understands the purpose....)
The one that I like the most was put out by Bloomberg press. "Fibonacci Analysis" authored by "Constance Brown". This was very well done. While people through around ideas of what they think is correct, after reading this book about five times, I think you'll find that more often, they miss some key concepts.
Please do realize, that it is not my belief that you need anything other than what IBD principles tell us. My personal thought is, if I am engaged in an area, I want to know as much as I can.
About the prairie, turn into something good. You've able to find calm there I suppose. You may still visit locations virtually, read blogs, sign up for the company's newsletter, or loyalty club. There is always a way...
Lastly, everyone will have a different personal level of comfort.
Hope this helps.
Okay, I told you that I'd write about some of the bonehead things that I've experienced. Well, one hit me on Friday and this falls into this category of General Investing as well as "Confused ? What to do?", so I'll leave it here. I'll call it "The Cornucopia".
I call it the Cornucopia because that is what I saw on Friday. Financially, Friday was a good day. Yet, it was one of many second guessing. Very similar to the Investor's Corner on page B7 in 10/25's issue. Read it please.
Here I was at the open and my plan was not going smooth, what I believed to move higher was meeting some resistance and not getting support. I knew that the erratic nature of the 1st half hour normally doesn't tell the tale. Yet, it had me saying "Shucks" again. Was what I hypothesized incorrect ? After the market became stable, the positions that I was watching began to behave as I initially expected. Pfew ! was my expression. As the position moves began, I was once again delighted and confident. Then the next thing hit at about mid-day, 4%, 5%, 7% in some. I began to feel like a cast member in the movie "Grease". Remember when the girls were talking about if the guy would call; He'll call, and the girl responds with a negative, only to have her friends reinforce the flip side, he'll call. Back and forth, back and forth. Sell or hold.
Well the next thing that took my thoughts was, what's happening, is this the final run ? I quickly looked up the definition of the climax top, I wasn't experiencing that. Oh heck, that would be nice, but it's too early in these positions for that to occur.
The next thing was something that I remembered about Scott's video series, "Is the stock acting normal"? I began to look. Oh, yea, "that's okay", is what I decided. The break out occurred or did so recently. Calm hit. "Let 'em run" is what I said to myself. But it doesn't end there. In walks the cornucopia.
I clicked on the "up in volume" screen to view what was moving. I'll do this throughout the day typically, if I'm in front of the PC. Hey, what's happening, my position is not at the ranking of where it was before and something else has popped. Okay, so I brought up that chart. It was in the same Industry Group,,,,,, and here we go again. The stock that I just viewed was better positioned for the Bill O'Neil checklist. Here it comes. Know what I thought of next ? Did I take a position in a stock that wasn't the leader ? Did I take second fiddle, instead of first place ? Should I close out and move into this other ? (I don't do the day trade thing) Yet, the movement of what I am holding was okay and good. There are many good and great behaving stocks.
When you see these situations, it perks your interest and I know, you want them all. If you take from the cornucopia a few that you can believe in and apply the techniques, you'll probably do fine. If you attempt to take the entire cornucopia, I sense that you'll fall as you'll be to diluted, won't be able to stay abreast of what each one is doing or about to do. That's not good.
If a stock doesn't perform, and begins to flash one of the sell signals, then my thought is to get rid of it. Learn enough about another one from within the cornucopia and begin again. (use the reports or screening to find these)
I was going to write about this Friday night but could not find the correct words. Instead, I took my two dogs for a long walk. Later my wife and I went to dinner.
I was going to write about this on Saturday, but still could not find the correct words. I sensed without them you guys would think that I was ready for the loony bin.
My wife had to travel last week for her work, so last night we went to a movie. The movie was "Secretariat". Good show. It reminded me of many of the articles that we read in the paper under "Leaders and Success" on page A3. Characteristics like fortitude, perseverance, belief, having a plan, modifying that plan when needed. We can do this but realize that each of us has to conquer ourselves in many ways. Most people will fold only to have missed. Stay with it, use the tools provided.
In closing, I know that we all experience these types of days, sometimes a stock has got to sit there and cook a bit before the pressure cooker takes hold, let it do it's thing as long is it's okay. When it's done, then it's done. Move to the next from the cornucopia.
Hope you enjoyed this. As normal, let me know what you think.
It's been sometime since I posted anything, but have been reading all that is written in the blogs and forums.
This evening, I wanted to address a topic that is easy to get caught up in and not see the way out.
This year, I think we've gone through a series of 6 corrections or so. When this happens, many people fold and go away. I've seen this in our meet up group recently. Yet, if we're to learn this skill and apply it well, this is the time to learn, refine, and apply those skills. I suppose the self imposed question is "how much effort will be applied"? Remember that the stock market is typically 180 degrees from normal human nature. That is, when things are great we want more and do more. This is vis-a-versa, it's easy when things are great. So, it may be best to realize this and take our own appropriate individual action. Take the brick layer or the carpenter, they probably build the wall or cut the wood wrong at first, only to come to the realization that their skill set needs to be enhanced.
Likewise, we have the opportunity to navigate through situations that most probably didn't experience 20 years ago. (I only wish I was 18 again) Pause and think about it for a moment. It's an excellent time to build these skills into permanent habits. What did we learn from each shift in the market ? The answer is personal and different for each. Are you still applying the routine that you've found effective or have you gone away ? Perhaps some questions to ask might be:
Well, I think I know what's going to happen next and I'm sure you to are forecasting this internally. It's going to be this stock or this grouping. As we've read, don't waste your energy on this, when it shows, it shows. I hope it presents itself to you. We shouldn't have a biased perspective either and guessing will only lead to bias.
I meant this posting to be a form of encouragement, though not sure if I communicated well enough.
As normal, please do let me know what you think.
Those are excellent questions and thoughts....
I once read a story about a supreme court justice (can't remember his name, but it was one I recognized), who at the age of 90 plus was continuing to take college courses. The point is ( yeah, I wish I was 18 again) .... you are never to old to learn.
I thought I'd tack onto this topic a short note as I found some real confusion. The market turned to an uptrend, (haven't seen proof as of yet), the tax issue was resolved, then it's not. Stocks are up in the morning and down at the close. I'm not to convinced that the go go juice is behind the equities as of yet. It's almost as though the money flow is day trading.
While I want to think that we have the green light, I'm thinking that it's now more red than ever. Normally, if I heard such a statement from someone, I'd think that it's about time to buy; that we're at the pivot of the turn in action.
So, what's a IBD follower to do. Sell them if they breakdown, if a technical trigger hits, act upon it. Remember what Bill has indicated, we can always buy them back. I truly did think that we'd see volume come in. If you follow, we haven't seen that for some time.
-Hope this helps, and if after your reading of this you have some insight, I'd be pleased to hear.
Thanks for the post as was thinking the same. Seems IBD didn't get a clear Follow-Through Day, but made the call once markets hit new highs.
Personally just bought into LLEN on breakout, buying at $11.66. Due to market action yesterday and most stocks reversing, have moved Stop up to $11.86. Per Ed Seykota, once have bought a position, and put in stop loss sell order, nothing to do except see if it either goes up or hits. At least with current stop, should sell at a profit while we see what the market decides to do.
At the moment the markets seems like its more interested in where is the next Christmas party than continuing the uptrend. With QE2 and the Bush tax cuts resolved, hopefully we just get a pullback and then continue higher. I am using the 10 day moving average as stop. So if the stock closes below the 10 day and takes out that intra day low the following day I'm out.
Tom, you obviously have a wealth of knowledge and information to share. Your comments are almost always spot on with how I understand IBD and Can Slim and I enjoy reading your posts and find them profitable. How about updating your “online profile” so we can know where you are coming from. Don
Tom, you (and several others) are playing an important role here by mentoring those of us who are just starting out. We appreciate it! Thanks for your time and efforts.
I would also like to take the time to thank you for all the advice, insight, and mentoring. You have been a valuable resource to me since I have joined MarketSmith. I may not always reply to your posts due to being so new to CANSLIM and being on the lower end of the learning curve. I did want to let you know I read all your posts and learn a lot. I have a feeling a lot of others who may not reply do so to. So thank you! I do appreciate what you do for the MarketSmith Community.
I agree with DavidM, Tom you are a great resource to all of us 'learners' so thanks and if I didn't know any better I almost feel you're on MS's payroll! LOL! Thanks for your insights! This goes out to Lon too - thanks! Brad
I thought that I'd spend some time and continue this forum post. I want you to know that I do appreciate all the comments and time that you've shown, in reading this, as well as putting your thoughts together in this shared format.
Tonight, I think it appropriate for a small blurb on history. Something hit me today. I was thinking, are the top performers rolling over ? Because we know from the recent blogs on the indicies, that we're at a obsure position in the market, what does that mean to me; or to you ?
We're not going to discuss that here, as it is my hope that you continue to read the paper, stay fluid with the community posts, and now know when it's appropriate to act, and do so.
Instead, I had a funny feeling that brought me back to something sometime ago. Yet, knowing that it was more powerful than normal, I couldn't put a finger on it. Just a few weeks ago, I navigated positions through a Tsumni, an earthquake, and a nuclear plant. All was fine then, what's different now ?
From Brian's post on IL, I thought that I'd look to see if there was any new information tagged into some of the forums and blogs that I've put up. (I do want to respond if there is; and if I don't, it's just a hiccup), then I came across this forum. In doing so, I realized, heck, I haven't been here in awhile, looked, and there was nothing new.
So, I began to read through the entire chain, when all of a sudden it hit me. The last time I had this feeling was when we were going through the QE2 stuff. Right around the 12/08's posting in this forum. The it, was QE2 or no QE2. Now it's US buget, or shut it down.
Reading through, I said, ahhhh history repeats itself, market forces, how I respond; to those emotions. I then reflected on the Introduction to "How to Make Money in Stocks" A winning system in good times or bad. I've got it on a CD and have heard it a number of times. (it's narrated well.) Human Nature on Parade. Please do revisit that.
I knew how QE2 was going to go, just as you did. Likewise, I know as you do, what's going to happen on this issue. If so / If not, we know how to respond. There is nothing to be afraid of.
Next month, next quarter, or next year (at some point) something out of our control, will happen. Pretty much a guarantee.
I don't keep a diary or such, just the notes that I populate in the journal. While they are extensive at times, they probably don't go into feeling stuff to much. Whatever helps you........
Make good use of the Market's system.
As normal, please do let me know if this is helpful or not,
This thread is incredibly informative. Thank you Tom (and others) for posting your thoughts in here. Simply excellent. I am glad I discovered, it is worth like reading a great book on investing/trading.
I just wish there was more activity in these forums, for us to share our similar (ibd-inspired) trading experiences. It may come after MS becomes more popular.
Thank you S.Kostreci. Your kind words are appreciated.
Take is slow and steady. No need for any apprehension as when the time is right, you'll know. Steady and consistency is probably best.
I had an experience a few weeks ago that I think I'll post in the forum once I figure the correct way to convey that experience in a meaningful way.
-Thank you again and know that you belong to a great community here.
As we watch history repeat itself as we've noted in this blog chain, I thought perhaps you could use this.
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