Stock trading isn’t all about just finding a trading pattern, taking it, and counting your money. There’s plenty of intuition involved too.
Have you ever tried to follow someone else’s trading style, only to pick all the losers, and miss the winners? I’m not sure why it works that way, but it frequently does. It’s an issue of self confidence. Don’t get me wrong, I believe in sharing stock picks, but when you pull that trigger, you should know all the reasons behind the buy or sell. It makes us feel secure getting second, or third opinions to justify our trades. Look at the success of Jim Cramer’s Mad Money. Sure, Cramer is a professional, and has more insights than the regular investor. You just have to make sure you know why you are trading, on what you believe, the stock is going to do.
Today, I took a trade in QLD where I had to face intuition, others’ beliefs in market direction, and my own decision. When the stock market started it’s afternoon slide, I looked at the daily Nasdaq chart. The index had put in an outside day, engulfing yesterday’s candlestick. Trade was at the low for the day, and had formed a sell signal. I monitor a stock chat room of 600+ members, basically to get a feel for sentiment. The feeling was that the market would keep sliding into the close. Who wants to hold stocks into a weekend? My intuition was telling me that next week is options expiration, the market has already produced a large amount of fear in the last few weeks. My gut said go long QLD, and fade the market signals.
I saw that QLD put in a bottoming tail on the 5-minute chart. Volume was high for that bar. The boat was leaning too far to the side of the bears.
I had to fight the emotions of being wrong. I had a stop of .50 for R, and set my targets for selling. So what was I worried about? Psychology is definitely 99% of this game.