“The Market Timing Tale of the Discretionary Trader Named Jack.”
Using market timing principles, Jack decides to a buy small cap stock ETF at support.The market initially bounces a couple of percent from his support level and he runs into the kitchen that night telling his wife that he thinks that he has picked the bottom.He’s elated.They even make love that night.Then the market turns again and falls violently 3% through the prior bottom he was trading off of.He’s distraught.He says nothing to his wife.But he thinks to himself “It may just be falling through support a couple of percent and THEN bounce.”So he holds on.
Then the market closes 1% further below support.He’s still in. His wife asks how their investments are doing.He says “Fine. Not as great as I like, but I think it will work out.”She looks a bit worried, but says “I’m sure it will work out.Don’t let it get to you Jack!”
The next day the market falls another 3% and he says, “Well, now if I jump out and it bounces, I’ll feel stupid, so I’ll wait.”He thinks his wife will think he is stupid, so his bias is to avoid the pain of telling her he took a loss.
Then the market closes down another 2%.He says “Now I’m down roughly 9% and that is often close to that 7-10% range that investors call ‘corrections.’So I’ll just wait.”The market then falls another 1%, goes up a half a percent, and then falls another 3%.Now he’s down 12.5%.You get the picture?
Talk about bad market timing!
If you would like to know why this is “Bad Discretionary Trading” on Jack’s part and what you can do to avoid it, just sign up for my “Tips” newsletter below. The Tip #29 report is called “Where Jack Went Wrong: How to Avoid BAD Discretionary Trading Errors at all Costs.”
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