Last week, I wrote an after-hours 12631 blog post about one of my holdings at the time, GWR, which had sold off after the close when the firm announced a stock offering (which is usually seen by the market as dilutive to current shareholders). The after-hours weakness carried over into the following trading session, and since I had plenty other longs in my portfolio I decided to cut the 1/2 position starter for a manageable 3.7% loss. GWR represents just about the only loss I have taken in this otherwise healthy market, and even then it did not come all the way down to my preset stop-loss.
My point in the 12631 blog post for members with GWR is that it was a technically strong setup before the surprise announcement. In all forms of speculation, including trading, there is an element of luck involved. Here, it was bad luck that the firm would announce an offering the day the stock breaks out from a bullish pattern. Incidentally, the stock has since failed to follow-through lower and is still broadly consolidating.
Beyond that, though, the critical issue was to not allow the GWR offering to put you “on tilt,” and thus trigger a series of sloppy, emotional decisions. You must have a certain zen about trading and allow the luck–good or bad–to wash over you.
However, the area where you should be hard on yourself is when it comes to that which is within your control as a trader–Focusing on the quality of the technicals of the indices, your setups, your stop-loss discipline, and legging into positions methodically.
On the flip side of the coin, my current long KORS surprise-announced strong guidance yesterday after-hours, and is now up 4-5%. Just as with GWR, though, you cannot allow this type of luck (good luck, here) to sway your emotions or decision-making.
Be the casino.
The casino does not get rattled when a wild gambler steps up to the roulette table and wins all night long, nor do they become exuberant when they clean him out, because they know over the long run the odds are in their favor. There is no celebration or agony necessary. It simply just is what it is for the casino and their mathematically-advantagous position.
You, too, as a trader need to focus on the long-term odds that add up with each and every single decision you make as a trader. Those factors out of your control should have exactly zero effect on your decisions.
After all, the stock gods giveth, and the stock gods taketh away, and then giveth, and then…