Traders Change Mind

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Traders Change Mind

Top Stock Market Traders Do Change Their Minds

By Dr. Winton Felt

 

If you put on a position and five minutes later it doesn’t feel right, do not be embarrassed to get out.  If you become unsure about the position and you don’t know what to do, sell the position.  You can always buy the stock again.  The fact is that you will be able to think more clearly when you are out of the position.  The confusion is exacerbated if you have told someone else about the position.  However, even if nobody else has been told, you may still be conflicted by self-accusations.. 

If you tell someone that you just bought ZYX Company at $30.50 a share, you will have an ego investment in that position.  Your reputation is now on the line.  If your friend also buys the stock, you will want it to rise.  It has to rise.  Otherwise, perhaps your friend will think you don’t know what you are talking about.  Your credibility is on the line.  Everything you ever say in the future about investing or about the market will be considered in the light of that stock’s performance.

If the stock comes under enough selling pressure to fall below support, you will now have internal conflicts about selling.  Are you going to tell your friend that you were wrong and that he should sell?  It has been only a day since you told him about the stock.  Will you sell your stock but say nothing to your friend?  You will probably be tempted to hold on and hope that the stock recovers.  In short, you have compromised yourself and your strategy because you have made public statements and because your friend is involved.

A trader already has many internal battles to fight, and he does not need to add another.  That is why we caution against ever telling anyone what positions you have in your portfolio.  Do not fall to the temptation of giving your recommendations when asked.  Find a way to make a joke about the market or about yourself, or use some other means of diverting the person’s attention to something else.  For a few moments, it feels great to be able to sound like an expert while pontificating about the market or explaining why a particular trade should be made.  However, it is a bad habit to do so.  Sooner or later, it will become obvious that you are not the grand wizard of Wall Street.  On top of that, you will have extra psychological hurdles to overcome in sticking to the rules of your strategy. 

What is ironic is that some traders have similar conflicts even if they don’t share their ideas with others.  They become their own worst critics.  They buy a stock, and if a few minutes later the position makes them uneasy, they argue with themselves.  They think that if they sell after only a few minutes they will feel stupid.  “I’m just being silly,” they tell themselves.  “After all, it’s only been a few minutes and stocks do fluctuate.”  The problem is that the trader is taking on himself the burden of being right or wrong.  The truth is that there is no implicit duty to be right.  The market is a wild thing that can be illogical or insane at any time regardless of what any individual thinks or does. 

Accordingly, our traders at stockdisciplines.com try to avoid any semblance of commitment to a stock or company.  They may sell a stock two seconds after they buy it.  Never be embarrassed if conditions change and you are no longer comfortable with a position just taken.  Nobody will care if you decide to sell.  Nobody is keeping track.  A good motto would be, “When in doubt, get out.”  You will be able to think more clearly when you are free of the position.  Without the burden of having already committed to the stock, you can look at it with fresh eyes.  You will then be able to buy it again if you want to do so.  However, if you are still unsure, you should walk away and find something that instills more confidence. 

Where is the virtue in refusing to change your mind?  Only the arrogant think they can never be wrong or that their first thought on a matter is always perfect or without error.  The market has a way of dealing with arrogance.