Today was not a good day for our portfolio as HAIN announced weaker than expected Q4 earnings and DDD had a dreaded earnings preannouncement prior to Wednesday's market open. Right out of the gate HAIN was trading lower by roughly 10% while DDD was getting taken to the woodshed, down over 25%. This kind of volatility is enough to churn anyone's stomach and I'm sure you had similar feelings if you own either of these two stocks.
Luckily once the opening damage was done both stocks recovered roughly half of the losses. HAIN is now sitting right on its 20 WMA after bouncing at the $80 support level and DDD has now retraced almost all of its parabolic gains from the end of last year. DDD traded right down to its prior breakout levels near $54 before it found buyers and managed to close back near the $63 area.
While it's painful to watch, I can't emphasize enough how important it is to wait for closing prices before making buy/sell decisions. I know the temptation is to just get out as fast as possible when something like this happens. You just want all that red in your account to go away. The market is an expert of taking your emotions and twisting them just enough to get you to panic into the sell off. The market has made millionaires of those who wait for panic moments to take advantage of shaken, emotional traders. This is why having a plan is so important. There is so much emotion and noise that takes place between the Bells on Wall Street, you cannot allow that noisy volatile time to overwhelm your senses.
Because we are fallible and emotional beings, we need pre determined guidelines to follow for when emotional pressures are triggered. With no plan you would be there selling out your positions to the wolves and there were a lot of sheep out there today being led to slaughter. The market feeds on this emotional release but we cannot be a part of that. If you have a plan you would have watched these declines (in horror I might add), but that's all you would have done is watch. You would wait until your signal actually triggers whether it's on a daily closing basis or weekly basis. What you would have gotten out of that was saving your account roughly 5 and 10% respectively in each of these names from open to close.
As you know I trade weekly signals which means I wait for Monday through Friday's trading to determine if a position is still valid or not. If come Friday, my signals are failing, then I will make my sell decision. Some might say that's taking excessive risk and foolish. Well I have studied these events and looked at the probabilities. Through my research I have discovered that these events tend to be outliers in an overall successful strategy. If you only position yourself for outlier events you will miss 98% of the normal action. With a plan in place your success will not be based on these "one off" type events, sure they are gut wrenching, but you have to be able to sit through some volatility if you are going to have success in the stock market.
I will be waiting to see how this action shakes out in the next couple days, just as I discussed dealing with the volatility in the SP500 after Monday's rout. I wait for weekly closing prices; I am an intermediate term trader and those are part of my rules. This helps keep my emotions in check and keeps me positioned based on the weekly timeframe. Some people need to be more reactionary with their trades and trade daily time frames, and that's fine, there is nothing wrong with that. But whatever plan you have for managing risk, do make sure you follow that plan when emotions get the hottest.
Could these stocks continue to trade lower into the end of the week? Sure they could, but they could also manage to stabilize and remain valid positions for us going forward. Do not mistake my "weekly closing price trigger" for complacency around these volatile events. Quite the opposite really. My plan allows me to view these events without emotions and makes my decision extremely clear as we head into Fridays close. Bottom line if DDD stays where it is here it will signal a partial sale due to the 20 WMA invalidation, but HAIN could still remain a perfectly valid position as it is still holding all support signals I follow. Let's watch and see what happens.
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