Don’t Look Back!

Don’t Look Back!

The two emotional factors that affect investing the most are fear and greed. These emotions are found in many situations. Fear can be found when every­thing in tire investment world looks terrible; there is no viable reason to be putting money into tire markets. Greed is jumping in to the markets/stocks as they have continued moving up over an extended period of time and the world looks rosy. Everybody wants to jump on board because nothing can go wrong.

Those are the normal circumstances for identifying fear and greed. How­ever, fear can be experienced when it’s time to sell a profitable position. For example, a stock is bought for $10 a share. Over the next two weeks it moves up to $14 a share. Candlestick sell signals start appearing. What happens when a stock price gets strong? Everybody finds great things to say about the com­pany.

What is the fear factor for selling the stock? What if!!! What If the stock is sold at $14 and after a few days it goes straight to $18? Boy, would we look stupid! So what do most investors do? They hang on to the stock even though the candlestick “sell” signals said it was time to get out. Finally, they get out of their position at a much lower price. All for the sake of not looking stupid had the stock gone to $18.

The candlestick signals produce an important message. They visually dem­onstrate when the “probabilities” indicate it is time to sell. The effectiveness of candlestick signals is the ability to show high probability buy and sell situa­tions. When the signals say it’s time to sell, close out the position.

There is nothing wrong with buying when it is time to buy and selling when it is time to sell. If, for some unforeseen reason, the price immediately spikes up after you sell it, don’t look back. The trade was closed based upon high probability factors. To hope for additional price increases is exactly that, “hope.” If a trade was closed based upon the signals indicating that it was time to sell, that was the trade.

The purpose of using candlestick signals is to get investors into a position when the probabilities say it’s time to buy and get them out when it is time to sell. Under that investment philosophy, those funds coming out of a sold posi­tion should have been put into another trade where the probabilities were in the investor’s favor.

Worrying about a stock price moving up after the position is sold becomes detrimental to rational investment thinking. Stocks prices will move up after the signals shows “sell”. Not nearly as often as prices will continue down. Even if the price of the stock moved up after the sale, it was now in a higher risk area. Those funds should have been moved to another chart signal where the prob­abilities were great and the risk factor was much lower.

Take profits when it is time to take profits. There is absolutely nothing wrong with coming out of a position when the probabilities say it is time to come out. There is absolutely nothing wrong with buying that position back if the sell signals are negated. The J-hook pattern is a prime example of getting out when the signals said to sell and getting back in when the J-hook pattern shows buying. The purpose of investing is not to maximize your profits on every trade. The purpose of investing is to maximize your profits for your ac­count.