Friday, March 14, 2008

The Psychology of the Call team wishes our readers a Happy and Healthy Weekend~

Here again are the Eleven Commandments of Trading. Today we refer you to Number 10: “Unforeseen events/shocks will happen, inverting the market upside down (remember commandments #1 & #2)” Very appropriate for today, wouldn’t you say? Hopefully if you were long Bear Stearns you were obeying the first two Commandments. The Psychology of the Call team believes strongly that the ramifications of the liquidity problems at Bear Stearns (BSC) will be played out in the Global Market for weeks, possibly months to come. There are simply no positive aspects to the continued erosion of financial stocks. Investment Banks across the globe will be strained by their relationships and investments with BSC and other US Financials. On Thursday we suggested you not buy the intraday rally, choosing instead to view it as an opportunity to sell into strength. At the end of the trading day the DJI closed in slightly positive territory. Now you’re probably aware that the Asian markets tend to follow the US markets, but on Friday night in Japan the Nikkei closed at a 2 ½ year low. Then Friday the BSC news was released causing the US markets to drop significantly. Do you think – maybe – that someone in Japan knew in advance about the release of BSC news? Who knows, but this situation serves to emphasize the 11 Commandments, especially numbers 1, 2 and 10. Look for further weakness in the financial sector ahead and always obey:

1 Never trade more than 10% of your total capital/account value in any one position. 2 Cash is King. 3 Cut losses to 15% maximum whenever possible. If your psyche is shaken, step away and don't trade for 1 week. 4 Take and enjoy profits of 30% or more. 5 Never fall in love with a stock and never force trades or over trade; remember commandment #2. 6 Never accept excuses from management, period. 7 Use technical and fundamental data & psychology/sentiment from the conference call to select trades. 8 There are two sides to the market, long & short; take advantage of that leverage. 9 Understand the significance of the macro geo-political economic environment. 10 Unforeseen events/shocks will happen, inverting the market upside down (remember commandments #1 & #2) 11 All of the above are void without reading the Psychology of the Call.


Anonymous said...

Was Bear Stearn really unforeseen? Aren't all US banks in big trouble now? I guess Y-O-Y figures are pointless for the next year now that markets are collapsing around the world.

Anonymous said...

(Another Anonymous) I took your advice and moved more to bonds and less to stocks. I would have lost thousands without doing that.