Monday, March 05, 2007

Middle finger to the bear

Fool me once and it's my fault, fool me again and i'm the fool. When the market open down today, I know I have to get out of the market. Hence at open, I saluted my middle finger at the bears and began selling. No way am I surrending all my profits to the market. I have conceived a plan to get out of the market over the weekend and I simple throw my emotions aside and sold like a robot. Gosh! and the market tanked half an hour later.... the feeling was like escaping death.

My observations were:

1) When market tanked last Tuesday, there was no strong rebound. Everyone seems to be waiting to sell at the next rebound. My thought was, if everyone wants to get out at rebound, who on earth will buy and thus cause the rebound? It then became clear that I cannot wait for the rebound. Another thought about waiting for rebound, everyone hope we can reb0und from 3000 to maybe 3200, but another possible scenario, we can drop to 2800 and then rebound to 3000.... by then I would have lost more! Also what difference does it make to me, for me to lose 20 cts to cut now and to cut at almost the same level after a rebound? and that is when I don't even know where the rebound will be. I cannot expect the market to go to where I want, but i can decide what to do whereever the market is trading at.

2) After intensive research into market tops on Dow Jones and STI charts, it became clear to me, the probablity of going further down is at least 80% as compared to a immediate rebound. Hence when market open Monday without a rebound, my gut feel said, "Enough Dec, don't be stupid and throw away good profits!" and thus, GrowMoney Growth Fund has gone 100% cash and this time round I have kept a majority of my profits intact :D .....a distinct difference during the May'06 debacle. Avoiding the same costly mistakes has become my forte. If you keep avoiding the pitfalls in trading, how can you not make money?

3) Alot of the anlaysts and economists are pacifying investors saying correction is normal and healthy to the market and that economies fundamentals are still strong. Now this is wierd, i never see them show concern last May when we tanked. Even Greenspence issue a make up statement abt recession after his first send the Dow into tailspin. With so much assurance, market didn't have a decent rebound, it's high chance more downside is coming.

What's next? I'll be waiting to short at rebound. You might be thinking, this decipher is crazy!! If he thinks there is a rebound, then why does he has to exit all positions, he can sell higher at rebound! minimising losses. My reply: Psychology in trading is the utmost impt and somehow mostly ignored. Would I be able to think objectively looking at my profits contracting? Would I bear to sell when market rebound? Why should I risk a majority of my profits for the few cents rebound? Now with 100% cash, not only am i in better condition psychologically, I have the cash to trade on the short side.

Just watched Rocky Balboa in the evening...there is this particular scene where he was lecturing his son. The philosophy was very meaningful and it can be applied to trading.

"In life, you are bound to get hits and it's going to knock you down to the floor a couple of times. You have to muster enough strength and take the hits and move forward. Only a coward will blame he, she, them, they for something that he didn't fight for."

In Trading, losses are part of the game, we must have proper risk mgmt to minimise the impact the losses will hurt us and move forward and towards Total Profitability. We are our own weakest link in trading, if we don't sort ourselves out, no one can help us.

DISCLAIMER: This is not an inducement to buy or sell. You should do your own analysis on top of my postings. Copyright © 2006 GrowMoney Blog. All rights reserved.