Well, I was definitely wrong when last week I said that the market wouldn't have the ability to break out to new highs just yet....but I knew better than to stubbornly short the market just because I felt this way. This move is making a lot of people I'm sure say "wow!” I remember saying that last year a lot of times as the market collapsed.
A lot of traders will probably be crippled or bankrupted by today's move because they shorted a market that they felt moved "too far too fast". One of the biggest money losing traps that traders fall into is buying a market they felt was oversold or shorting one they felt was overbought without any indication at all of a turnaround. Not only do they get it wrong but they end up making big bets on these types of trades, doubling and tripling down to the point where they are "all in" because they feel that a turnaround is all but guaranteed. The collapse of Long Term Capital Management is a perfect example of such a bad trade. The destruction of value funds who bought the likes of Citigroup and AIG last year on the way down is another. Why did these colossal mistakes happen? Because traders did not respect the market. Their ego’s were too big….they were telling the market “you’re wrong and I’m right”. The market can and WILL go to extremes and quite often when it does it is sending a loud message of a change in long term fundamentals. Yes, sometimes it's irrational exuberance or pessimism, but in either case its best you step aside and wait for the market to show signs of turning around in the direction you expect it to go, or if you really insist, only commit a portion of your capital and gradually add more ONLY when the market starts agreeing with you. If it doesn't you can just wait or cut and run....either way you shouldn't put yourself in the position of taking a big loss.
The golden rule of trading/investing is NEVER UNDER ANY CIRCUMSTANCES PUT YOURSELF IN THE POSITION OF TAKING A CRIPPLING LOSS. Because once you are wiped out...you are wiped out.
ALWAYS RESPECT WHAT THE MARKET IS SAYING WHETHER YOU AGREE OR NOT. If you don't you will learn to respect it the hard way.
As far as today's action goes, I doubt the bears are going to be let off the hook today. I suspect the market will close near the highs of the day. I might make a late day intraday trade to take advantage of this. If conditions aren't ideal then fuck it...I have no problems just watching the action today.
No comments:
Post a Comment