Murli - I am not telling you what to do, as everyone is responsible for his/her own actions. However, let me make the following observations:
People lose money in the market, when they confuse two distinct approaches: trader vs investor.
Why did you buy NITE (or any stock)? If you bought in for a trade, then it almost doesn't matter what the stock is, how good the company behind the stock is, how expensive/cheap the stock is. Nothing matters, except the TA. Market dynamics *of the moment* is what matters - **nothing else**. As a trader, many times you can buy a stock not really knowing what the company does - basically it is a combination of letters in a stock name. Your time-frame is *strictly* confined to the lenght of your trade. At that point, you evaluate the prospects for the stock, using TA. Based *only* on that, you execute your trading plan (you *must* have a trading plan).
In that situation, fundamentals don't matter. If you are looking for a momentum play for a few days, for a few points, and you buy, but the stock fails to perform, you must get out immediately, because your perspective is of a trader who had a trading plan with a specific time-frame. When the TA turned against you, and you are sitting on a trade that is going against you, often inexperienced people make a terrible mistake: they start thinking like an *investor*, and say, wow, XYZ is a great company, surely the stock will recover? Wrong. You bought like a trader, but you are hoping to sell like an investor. You blew it. A good company might be consolidating. Look at MSFT: it hit a high of some 95 in April. If as a trader, you bought hoping to grab the momentum to go higher, and then MSFT declined - you blew it. You should sell, and buy something else that will immediately put your $ to work (or you short MSFT!). Now, instead, some would say: wow, MSFT is a great company, surely it will come back! Well, it took until today to come back - and you'd be at break-even. That is 3 months waiting. Bad use of capital. And many "good" stocks can 'consolidate for a year or longer before they reach your break-even point. So, if you bought as a *trader* with a *trader's plan*, you should not suddenly start thinking like an investor.
On the other hand, if you bought a stock as an *investor*, you should buy the stock based on extensive FA (maybe throw in a bit of TA to pick your entry point). And you cannot suddenly say: wow, the stock has declined - I am losing my patience! I'm selling! That is the perspective and *time-frame* of a trader. As an investor, you sell only if the FA indicates you should. Otherwise, just sit back and relax. If you bought as an investor based on FA, but you decide you were WRONG on *FA GROUNDS*, then sell, but not because of the way a stock is behaving! Look, to give you an example. Imagine that you bought MSFT at $36 years ago - suddenly MSFT goes down to $25. Did you sell? If you did, you missed the $36,000 payoff an *investor* got. As a trader, yes if you made a mistake, sell immediately, because, you are looking for an immediate gain.
In reality THIS IS HOW 99% OF THE PEOPLE WHO LOSE MONEY IN THE MARKET FUNCTION:
I'm buying NITE as an *investor* on FA grounds for $160. NITE tanks. I suddenly develop a short-term traders perspective, and panic, selling at $82 (bottom). I lost money. *If* I bought as an investor, unless the fundamentals changed, or I decide I made a mistake in my FA - I was WRONG to sell!!!!! I lost money.
I'm buying NITE as a trader on TA grounds for $160. NITE starts tanking. *I should have sold immediately*!!!!!! Remember, I'm not an investor now, I'm a trader. I should have sold immediately, because I made a mistake. Instead, I suddenly develop an investor's perspective, and hold on, and on (famous last words of countless traders "but it's *gotta* come back! It's such a great stock!"). I hold on, until my margin hits me and in utter panic, I sell at the bottom of $82. I lost money.
Decide why you bought a stock - as a trader or as an investor?
If you bought as a trader - know the reasons why you bought, know your TA, have a plan and have the *discipline* to execute your plan as a *trader*. Take your profit. Limit your loss.
>>>>>React like a trader<<<<<<<.
If you bought as an investor - know the reasons why you bought, know your FA, have a plan and have the *discipline* to execute your plan as an *investor*. Look at the long term. Sell only if you need the money, or the FA changed. Don't limit your profit.
>>>>>>React like an investor<<<<<.
Of course, there are nuances - as a trader, you must decide if your trade is a position trade that will last several days/weeks, or a daytrader. Now the same applies as to the trader/investor paradigm. If you are trading as a daytrader, don't hold a losing position - because it will come back in a week! That is a swing trading perspective. You will lose. Because you did your TA as a daytrader - and you are executing a daytrading plan - it is inappropriate and wrong to apply that TA to a position trade. And vice-versa. If you bought for a week - don't suddenly act as if you bought for only 10 minutes. You will lose money, you will get whiplashed.
Bottom line: alwasy know *what* your plan is, and *execute* your plan with discipline.
You can be an investor, or daytrader, or position trader, or all three at the same time - but don't *mix* that when applying it to any one stock. Play your role consistently.
It is not easy. Not to seem to gloat, let me tell you of the mistake *I* have made recently with NITE.
I loved NITE on FA grounds (investor), but the TA looked terrible. I even said so on this thread. Well, I bought it low enough at 42, and then again in the low 50s. When it hit 60 but couldn't get through the 62-64 barrier, I didn't sell, even though my TA was screaming SELL, SELL, SELL. That is because I couldn't fully decide if I was investing or trading NITE. I so love NITE on fundamental grounds (at least for the next few years). But then I woke up - and publicly proclaimed my stupidity on this board. I confessed my TA/FA discrepancy error, and vowed not to repeat it. Since I decided that I want to be a trader of NITE first, before being an investor, I started acting like a *trader*. When NITE looked to break below 60 - I sold, and subsequently, as a trader, I took the next logical step, and shorted the stock (though as an investor my heart was breaking to have to short). I have since traded it long and short - often shorting the morning rise, and trading intraday. I have made good money. Before, I just sat while my capital was not working for me. Now, I'm not saying I won't invest in NITE - but right now, I'm a trader. When I become an investor - I won't worry over every little market fluctuation.
Hope this helps.
Morgan |
