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Strategies & Market Trends : Technical analysis for shorts & longs

SPY 683.21

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Jan 2 4:00 PM EST

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To: Logain Ablar who wrote (35945)	1/20/2002 2:50:54 PM
From: j g cordes	Read Replies (1) of 69415

Tim, regarding "My only reason for buying zoox is I already own some with an avg cost of 90 and I HOPE (a bad word / style) to lower that by trading some shares (a mistake I know)." Yes it is, and our getting feedback on our mistakes is important.. one of the best reasons for posting one's ideas. So here goes.. There's a tendency we all have of wanting to summarize an investment episode to a positive overall conclusion. Averaging down is one of the names given this inclination, or dollar cost averaging, and some other terms. What they all have in common is an attempt to make a loss resolve itself as slightly positive or to make some perception of the loss appear better than it is. Buying more to make one's average point loss smaller.. ignors the fact that one will likely be loosing more shares. Losing scenario.. It goes like this.. I bought 1000 shares at 2.00, then the stock dropped to .50 cents. I only have 25% of my original investment and its mentally frustrating to take such a big hit. This hurts so I buy more in order to make this trade FEEL better by playing a numbers game. OK.. so I buy another 4000 shares at .50 cents for a total of 5000 shares with an average price of .80 cents per share. Now I can rationalize I'm only down 38% and break even if the stock only rises to $ 1.25 per share.. no sweat. The problem is the current price would have to more than double in order for me to break even! For those investing in this stock right now, at .50 cents.. , most likely they're not looking to double. A 30% to 50% return would be large and within the downtrend occilations of the stock price pattern. There are lots of good sayings for this phenomena, one is "good money after bad." Chasing a bad trade with new money is common.. we all do it. But on any given day there are thousands of stocks going up.. yet instead of putting money in them we try to right the past. ----- PS.. I've done it myself many times. In the end every trade has to be judged only on its own merits. Does the trade win or lose.. never to balance the psychological bookeeping.

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