Have you ever started an exercise regimen, only to see that you aren't getting the results you wanted? It's awful common, yet sometimes the real reason eludes the person. I remember being in a gym, where a young man of about 30 was trying to add some muscle and definition. He'd do three sets of this, and three sets of that. He'd split train his upper half one day, then his lower half the next. He worked so hard, and yet he wasn't getting the results he wanted. He was getting stronger, and tighter, but his muscles wouldn't grow in size the way he wanted.
This guy was indeed becoming frustrated, and of course because everyone seems to be an expert when you're at the gym, I heard people telling him to do carbo loading, protein loading, work more on the "negative" side of the exercise, do super sets, you name it. The one thing I didn't hear anyone suggest was that maybe he was over training. He was taking his routines from magazines like Muscle and Fitness, written by world class body builders. Was he a world class body builder? No, he was "Mike" a painter. I didn't find it surprising that he wasn't getting the results he wanted, he was training his body as if he was a true world class body builder, but in all reality he wasn't.
I am not an expert on body building, but I've done my share, and I have a fairly good dose of common sense. So, one day I mentioned to him that maybe he was pushing too hard. His body didn't have the years of recuperative experience that the guys in the muscle mags have. I suggested that he was stressing his muscles to the point where they should have been rebuilding even bigger and stronger, but before they could do any growing he was pounding them again. For what ever reason, he figured he had nothing else to lose, so he scaled back his intensity, and frequency of workouts. Almost immediately the results were noticeable. Within a month of his more laid back regimen, his arms, chest and legs had grown measurably. Doing less got him more.
Sometimes it's the same thing in the market. Sometimes we push so hard, over analyze so much, that we find ourself doing more harm than good. Staring at a screen watching every tick higher or lower, starts to get your mind racing about every conceivable possibility on earth. Pretty soon a small downdraft has you mashing the sell button for a loss, and then five minutes later it's back above where you bought it. Sometimes you can do so much research that you get information overload and then you do absolutely nothing instead of making a play. Because we are humans, our emotions usually rule us. But, in the investing game, emotions will rip you to shreds. The best traders and investors I have ever met have mastered the art of removing emotion from their investing.
This is not an easy thing to do. When you hit the buy button, money, real money that you've worked, for is now on the line. We don't like to lose money, so our brain kicks into high gear. Instantly a completely normal ten cent downdraft is the end of the world. Panic sets in. You are convinced that you just bought the evil stock from hell, determined to see to it that you lose all your money. You sell out with a loss and sit back trembling. Whew, glad that's over, you say. But more times than not, you look later and the stock is comfortably higher than it was when you bought it. You lost money, on a winning trade because you "over did it". You over analyzed. You pushed too hard.
In a trending market, you want to look for reasons to leave a stock in play. If there is a sound reason for it to weaken, then certainly you have to bail out and move on. But sometimes a stocks weakness is not because the stock did anything wrong, it's some outside factor that influenced the problem. That's what happened one Wed to a lot of traders. The market was supposed to be up. But even after tremendously strong numbers it was weak. So, it stands to reason that individual stocks were weak too. But was that a reason to sell out? Or would the appropriate thing to do, be trying to find out why the overall market was weak, and then make a decision as to what to do? Obviously the second choice makes the most sense.
The moral of this story folks is that sometimes it's better to take a more relaxed approach. We aren't in the business of scalping for pennies here. We are trying to enter stocks that are breaking out, showing momentum, or moving on news or product development. Sure there are going to be times when you enter a trade that seems to make sense and it will go haywire on you. Absolutely. But if the reason for the trade was sound, and all of a sudden you see the stock going the wrong way, it's often best to sit back and try and find out if it's stock specific or there is a wider situation going on. That Wed the market weakness was the result of a rumor that there had been some form of "incident" concerning a subway. Terror fears flared up. Stocks sold a bit. It would have been easy to just hit the sell buttons and bail out. It took some discipline to sit back, survey the overall land scape and decide that the trend was still intact.
Try your best not to over do it folks. Don't stare at every tick. Don't over analyze. This isn't easy to do by any means. But I absolutely believe that you can all increase your winning percentages if you do indeed take a more relaxed stance. Sure you still want stops in case there is some calamity going down. But even stops aren't written in stone. If something is about to stop you out, sit back a moment, look at the overall market, was there a rumor? Was there a report? Are the other stocks in the sector weak too? Downdrafts happen. Sell programs happen. They key is not panicking when they do. Don't over think it. It's not easy, but it's necessary.
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