Depending on you own psychological make up, you are more likely to be bullish or bearish. Its just a fact of life. And newspapers or newsletter services exist to tell people what they want to hear. That’s just a fact. For 25 years I read Barron’s covers. They were always bearish. Always writing about the deficit, federal or trade, it didn’t matter, it was the 7th sign of the Apocalypse. But they had their loyal readership
I always imagined a true Barron’s reader as some one living in a 3rd generation mansion in Conn some where. Barron’s was more about bond investing, and protecting against the next big meltdown.
By contrast, the Wall Street Journal, was primarily bullish. Overall, its content and editorial writing was anti-big government, but bullish full speed a head about the US economy. If the Barron’s said it was partly cloudy outside, the WSJ crowd saw it as mostly sunny, with a few clouds.
So as we head into 2010, I have been reading a lot of predictions. Typically, an analyst takes a position, calling for a 10 percent bump or 10 percent correction, ‘sometime in the first or second quarter’…. gee, talk about taking a big risk by calling that, lol. And then typically, if the bullish writer is correct on his call, or the bearish writer correct on his call, that writer will spend the next 6 months after his ‘prediction’ came to light, selling his research based on that call, all the while warning, “past performance is not predictor of future performance.”
I tend to rely on what the charts are telling us. It clean, clear, objective information, which then must past through the subjective filter of our human brains.But like it or not, no one can change the high, low and settlement, and over time, I believe if you pay close attention to the charts, they will tip their hands as to where they are headed. All the time? Absolutely not.
However, the technical and fundamental combination of information at least gives you an objective starting point for deciding to either 1) do nothing 2) get long the market or 3) get short the market.
Once that decision has been made, it basically all comes down to managing a position if it moves against you. In other words, what do you do when your best laid analysis proves faulty.
Experience has shown, its best to take your losses. That’s really the only way you will be around for the times your analysis is correct, and you stand to profit handsomely from a move in your direction. AT that point, managing a winner is a whole different skill set then getting out of the losses.
It requires using trailing stops and a definite methodology for not allowing a winning trade to get a way and certainly never letting a winning trade turn into a losing trade.
Allowing a winner to turn into a loser is a slippery slope. Rule number one is never let a winner turn into a loser. Once a trade is a winner, at worse it should be a scratch, or a push.
Getting into that habit will raise your batting average, and that is what successful long term trading is all about.
Singles, Doubles, an occasional triple… Those are all better strategies than swinging for the fences on every trade.