Thursday was the S&P 500’s seventh up-day in a row. Not a bad run from a market that most people, including myself, thought was on the verge of moving lower. But that’s the way this game works.
Prices don’t bounce until the crowd has given up on the bounce. And now we are left with a mountain of regretful sellers who are kicking themselves for acting so hastily.
Lucky for regular readers of this free blog, I wrote the following seven sessions ago:
Wednesday’s 0.3% gain counted as a bounce, so I held my nose and bought it. My trading plan told me to add more following Thursday’s strong open, so I bought more. And here I am, holding a nice profit in a trade I didn’t even want to make! This example highlights why we always follow our trading plan, not our gut.
While I was not too fond of this bounce initially, I bought it anyway because that is what my trading plan told me to do, and now I’m sitting on a pile of profits. Funny how that works.
I’ve been doing this for a long time, and my gut tends to be right more often than not, but every time my gut and trading plan disagree, I always go with my trading plan because it is correct far more often than my gut.
No surprise, an objective, unemotional, thoughtful plan can outperform an emotional, egotistical, and a sometimes irrational bag of meat (i.e., me).
While years ago I would overrule my trading plan, almost every time I did, I came to regret it not long after. Get beat over the head with humbling losses often enough, and eventually, I learned my lesson.
And now, I always follow my plan no matter what my gut thinks. Today I am sitting on a pile of profits in a 3x ETF because of that lesson I learned the hard way all those years ago.
If you messed up this trade, don’t be too hard on yourself. Count this as a learning experience and try to do better next time.