The Anger Amazes Me, But Proves the Point -- By: Bill Kraft
Copyright 2008, Makin' Hay, Inc., All Rights Reserved
Bill Kraft
Editor |
Last weekend I wrote a little article suggesting that perception,
not necessarily actuality, moves the markets. In the article I quoted
-- yes, quoted, not made up or voiced my opinion -- some positive facts
about the economy taken from front page articles in Investors Business
Daily. At first I was stunned by some of the responses which, among
other things suggested that I was "smokin crack," was an elitist who
"hung out with the likes of [the President], and that my head might be
"screwed on backwards" if I didn't agree with the emailer's opinions.
It really makes me wonder whether these people ever learned civility and
manners. I have no problem with disagreements and readily confess that
I am not always right. I am, however, ashamed for those who use name
calling as a way to attempt to bully others into sharing their
opinions. Name calling generally seems to be an emotional approach when
someone disagrees but has no reasoned basis or facts to martial in
support of their position. Name calling is nothing but divisive and has
no power of persuasion, nor does it make any positive contribution to a
dialog.
My bottom line in last weekend's article which was directed to
trading was: "...if we can gauge the perception of traders, their
current psychological bent, we are more likely to be able to give
ourselves an edge in our trading. In general, and in the short to
mid-term, it is the psychological, not necessarily the logical, that
moves markets." Another way to say it is that the markets move on
emotion at least in the short term.
Well, emotion is what I saw in some of the responses. One critic
even chose humiliating sexual names for the President and Vice President
of the United States. No matter what your political persuasion, I
believe the Office of the President deserves to be treated with respect
and dignity. How in the world referring to a President of the United
States as slang for female genitalia moves the ball forward is beyond me
from any reasoned perspective. However, these statements are clear and
unequivocal examples of emotional responses triggered by that person's
perception. It isn't logical, it isn't reasoned, and it isn't a fact.
It is a response founded in emotion arising from a mistaken belief that
I was trying to take a political stance. The attackers' positions
spewed from a perception that I disagreed with their political values.
I don't smoke crack, am not an elitist friend of "the likes of [the
President]," and can see my face and chest at the same time in the
mirror so it is probably not screwed on backward. Those are facts, but
they are the direct opposite of the perception upon which the
name-callers based their writings. They emoted based upon perception,
and made no apparent effort to confirm that their perceptions were based
on any facts.
The emotional responses in the Blog are rarely accompanied by
supporting fact. They usually seem to be shouts of opinion. The same
is true of emotional trading. Traders operating on emotion buy because
they "like" a company and hold a stock when the price is falling because
"it'll come back." I've heard more than one trader say he is hanging
onto a particular falling stock because "it has been good to me." That
doesn't seem to be a particularly clever way to cut losses, for example,
but it is a way people's perceptions (right or wrong) control their
trading. Because they may have made money in a stock before becomes the
standard. "It has been good to me before." The truth is that my
opinion is essentially irrelevant as to what a stock price will do.
Because I think a stock will go up doesn't make it so. As a successful
trader, I need something other than emotion to trigger my entries and my
exits.
That is my point about the markets. They, like our name-calling
friends, tend to overreact emotionally to their perceptions. It is
precisely that human phenomenon of emotional reaction to market entries
and exits that often results in losses for those traders. The traders
who can achieve discipline and awareness of "mob" psychology are the
ones who are more likely to have gained the edge and succeed.
The hot reactors are fodder for the market professionals. Trade
like the emotional name-calling writers write and the pro will get their
money every time. Ready, fire, aim is the emotional approach. It is
fine and natural to be aware of and perhaps even defensive about one's
perceptions, but, in trading, the thoughtful approach may work a lot
better. By that, I mean that I would suggest a trader examine the
fundamentals of a stock to be generally aware of what and how the
company is doing and, in important addition, look at the reward to risk
potential, and then set a specific entry and exit strategy before
entering a position. Stopping the process when we perceive that it is a
good company and our opinion is the stock will go up will probably not
save the day. As you can see with an approach like that, our emotions
may play a part but they do not control the trade.
One personal opinion that I want to share is that I believe
humanity has a better chance with civility. Often the other guy, no
matter what his political affiliation, has good ideas too. If we reject
someone's ideas simply because they are from a different political
party (or other difference), it is we who are likely to be the fool.
Emotional decision making strikes me as something similar to an
angry bull charging a man with a sword; it may be what anger prompts him
to do, but it isn't very smart.
Good Trading!
Bill Kraft
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Johnson & Johnson (JNJ)
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Have a great weekend and we'll trade next week.
Success Trading Group Team
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DIAMONDS Trust, Series 1 (DIA)
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Trend Trader -- by Bill Kraft
Trend trading as we try to practice it is a form of momentum trading. We prefer to try to capture profit out of the middle of the trend rather than try to catch reversal at bottoms and tops.
Here's a look at a trade Bill is currently working on:
Rowan Companies Inc. (RDC)
In this bear market, bullish candidates outside energy have
been fairly difficult to find. RDC is compressing and remains above the
uptrend line. On Friday it was up on very substantial volume which is
ordinarily a bullish signal. At the same time, it is bumping up against
a resistance in the vicinity of $42.50. If it can break and hold above
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encountering the next level of resistance.
Good Trading!
Bill Kraft
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$10 Trader -- by Bill Kraft
We really enjoy trading stocks that are $10 and under. Often they provide the chance to enjoy high percentage gains and, of course, at worst, the risk is limited to what we paid for the stock.
Here's a look at a trade Bill is currently working on:
UFP Technologies Inc. (UFPT)
This stock has stair-stepped down to a support around the $8
level. MACD has recently turned positive and stochastics appear to be
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Bill Kraft
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Here is a play from the Dividend Investor Team:
Health Care REIT Inc. (HCN)
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Have a great weekend and we'll trade next week.
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