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Tuesday, July 16, 2024

Are You Biased In Your Stock Trading?

February 25, 2010 by  
Filed under Stock Trading

Having a directional bias in your stock trading can be a good thing and it can be a bad thing. We have all heard people refer to themselves as “bulls” or “bears”. Sometimes stock traders claim these labels permanently.

While having a temporary bias can be understandable, it can still have a negative affect on your bottom line. For instance, the multi-year decline in the DOW had turned many otherwise objective traders into hard core bears. Naturally those who were short stocks from early October 2007 were right on track, especially when we saw the market nosedive below 7,000!

Now if those same bears stayed short they have had their profits eaten into quite substantially, but even that is not the point. The big quesiton is what do we do when we see the market change direction, which it started to do in March and April of 2009? Do we remain bears and stay short waiting to reclaim our profits eroded by the current uptrend? Some would say yes.

One important thing that we have to remember is that the best indicator of market direction is the direction of the current trend. There is no real reason to stick with a stock trade that is moving continously against you in hopes that the market will eventually go in your direction.

The entire point here is that effective stock trading requires flexibility. Sometimes that flexibility invloves admiting that your original trading signal was wrong. After that you may have to trade in the opposite direction…and that’s OK. Our objective is to trade stocks profitably and not necessarily to feed our pride or our egos. If you maintain your objectivity and flexibility your opportunies for profit will continually multiply and you will┬átrade more successfully than you ever imagined!

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