The raging pump we experienced this morning gave way to a nasty little fade. As much as my stocks participated on the way up, they have decided to participate 1.5x as hard on the way down. Two of my newer positions have changed their behavior. They’ve gone from watching my docile niece who enjoys computer games to chasing my barbaric nephew who front flips off furniture and drinks too much Kool-Aid. I love them the same, but each requires a different approach.
It’s easy to pick stocks when everything goes up 3-5% after a pullback. That’s exactly what the market has been since we started the year. Just buy dips, scale your 5% rips, and keep a runner to make the cream. When the positions don’t work right away it’s a different story. Or like ANR where I watched a nice gain turn into a loss before I scaled anything off. Now it’s time to manage a position. This is where traders are defined.
A knee-jerk reaction to your position flipping from green to red is to clap the sell button. The knee jerk reaction when you’re on the roof and suprised by your nephew’s head popping over the edge because he’s climbed the ladder is to run over and grab him. The better approach is assessing your risk and the options you have.
With my nephew, if he sees my face expression of shock I may scare him. If I drop the chimney cap I’m mounting it would make a loud noise and could also spook him into falling. Instead I continued working, quickly pinning the cap in place while keeping him in my peripheral only.
“What are you doing kid? Did you want to help me?” He nodded yes. “Okay let me help you onto the roof, here I come.” Remember to breath. Once I had a hold of him I suggested we go check on the dogs instead. Done.
With ANR it’s much simpler, and much less frightening. I defined a price before I entered the trade where I determined I’m wrong. I don’t give the brokerage a hard stop order at this level. I always have a drop dead stop well out of the way, but I like to watch live how the market treats a level before I decide to close. Once the position is on, it’s up to the market to decide whether or not I’m right. It’s a coin flip. Do you sweat a coin flip? Perhaps you have too much money on the line.Comments »