What a day for stocks...DJIA down 2.02% and the S&P down 2.38%! My poor 401(k)! Another one of my interests is the stock market. While there isn't really much in terms of equipment to purchase in order to play the investing game, this is one hobby that could really hit you where it hurts. I should know, considering I started out making baseless, impulsive decisions that cost me quite a pretty penny...erm, "pennies," I should say.
Back in April '09, I had liquidated virtually all of my positions, expecting that the market would crash soon again and that the action since the March bottom was a dead cat's bounce. A quick glance at the charts since then would show just how wrong I was. Although I remained in cash on the sidelines after my disinvestment, I had ventured outside of company stocks and into exchange traded funds, or ETFs. Since I was still young and dumb in the world of trading, I jumped right into the 3x leveraged ETFs. This is when I assumed my front-and-center seat in the trading school of hard knocks.
After realizing the bulk of my losses in the market around this time-frame with more sporadic, misguided trades, I decided to ban myself from trading until I could justify each trade I wanted to make. In my quest for enlightenment, I eventually found my way into the wonderful discipline of technical analysis, which appealed to me with its focus on analyzing "the charts." Now over half a year later, I can say that while I am no whiz-trader, I am definitely more informed that I was when I first started. This, of course, is not to say that technical analysis guarantees success. Having some idea of what to look for has certainly make me think twice about buying or selling. I've yet to perfect this, however, as the following chart from Google Finance shows:
On April 30, I had an inkling from looking at the technicals that this stock would probably come down soon as it was creeping into "overbought" territory. While I had been looking for an opportunity to exit this position for a couple of months and have had some previously, I again didn't seize the chance and am now back in the red.. What was my mistake? To put it simply, greed. I had wanted to break even and then some. This desire kept me from pulling the "sell" button. I also didn't trust my interpretation of the technicals. The two days since then have proved my original prediction correct. Clearly, I still have much to learn and this mistake highlighted the dangers of greed and not trusting yourself. Luckily for me, I am not down a huge amount and will continue to practice and hopefully, improve.
For those interested in learning more about the basics of technical analysis, I have found this to be an extremely useful resource: Online Trading Concepts.
Oh, before I sign off...here is another picture of the peony I posted in yesterday's post plus the second flower!
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