The Confidence Game
Research for Online Investors

by John Dalt

1/6/09

Investing and trading in the stock market requires confidence.  We gain confidence with every trade we make.  We lose confidence when a trade does not go the way we expect.  If we plan every trade, we may be disappointed that a particular trade didn’t work out the way we thought.  It may not be about money!  It is always about confidence.

Many times, we have a tendency to think it is all about money.  But, think about the importance of feeling in control.  When trades don’t go as expected it erodes our confidence ‘that we knew’ how it would work out.  This can be just as bad as a money losing trade.

Traders like Soros, Rogers, Casey and Schiff are admired for large positions taken that paid off handsomely.  In many cases the position grew over time as they gained confidence in the trade they initiated, and became more convinced in the inevitable profitability in their course of action.

We have closed trades in the SwingTrader that have not performed as I expected.  We still made money, but they didn’t go the way I expected.  We bought UYG in the beginning of December.  I expected banks to lead a rally through the Christmas season.  They did not.  Banks raised additional capital to pay back the government, and existing shareholders sat helpless as their stock languished.

Our long-term portfolio subscribers owned APWR, the stock went from $8 to over $20 in less than three months!  It had fallen off its highs and looked to be rolling over on high volume.  Yesterday, we told our subscribers to sell at $18.15  What does APWR do after we sell it?   This morning it is back over $20.  Talk about egg on our face! I always like to say, “You won’t go broke taking profits.”  But, you sure hate to see the market make you look like a buffoon so quickly.

I could go on with trades that made money, but didn’t go as I planned.  Our letter isn’t long enough to go into trades that didn’t go as planned, and lost money.

The important point to remember is that when trades don’t go as planned, you have to get back in the saddle.  Step back and analyze your system for any changes you should consider.  Then, look for your next opportunity.  I am.

Good trading.

To the Mailbag:
Subscriber S.C. writes about the Thomas Jefferson quote in yesterday’s MarketToday…
“ Wow. Thanks again for the thoughtfulness of great American quotes. This is so true. And sad that our govt can't see this as we have ample access to history, our forefathers and the best communication in history, yet we are still mired by the same problems of 200 years ago. I guess history is doomed to repeat itself. ”

Thanks D.C., but I ask “Where are the statesmen?”  The men of moral courage to lead and tell the truth, rather than grovel for TV time with tested sound bites.

John Dalt

“A politician thinks of the next election; a statesman of the next generation.”---James Clarke

The information presented in this newsletter is based on generally available news releases, corporate filings, current events, interviews and the editor’s opinions.  It may contain errors and you should not make investment decisions based solely on what you believe you have read here.  Do your own research, it is your money.  If you lose it, it is your responsibility, not ours or your grandmothers!  The editor may or may not have a position in any securities discussed.  The editor may have held a position in a security earlier, or in the future.

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