Back when my father first started investing in the early 70’s, he found companies he liked, bought shares of the stock and never sold them. Working as a foreman at Bell Atlantic, we didn’t grow up wealthy, but we were able to live very comfortably.
It wasn’t the pay that my dad was making that enabled us to have a house down at the Jersey shore, or go on vacations. It was the investments he made that gave us that opportunity. Back then, the stock market was a wealth creator that allowed middle class families like mine, to live a little better. But that has all changed.
Back then, you found out how your stocks were doing, by looking in the newspaper the next day. Now one can find out what their portfolio is doing on a per tick basis. Computers and the speed of information has opened up the “Emotional Pandora’s Box.”
Unfortunately, it has also turned the stock market into what used to be a wealth creating machine, into an opportunity for computers to take your money. Algorithms are being programmed to “think like humans-or the retail investor.” They know exactly what will trigger an emotional trade from the retail public (breaking a moving average or support line) and are programmed to do just that-to take your money.
YOUR TWO CHOICES
You really have two options in the stock market —be an investor and buy good companies with the intent on holding them. Or think like the algorithms being programmed to take the retail investors money. Don’t set stops right under support —maybe even look to buy just below? That is what these algorithms are being programmed to do —why wouldn’t you want to trade like them?
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Read the rules I follow for making trades here.
RELATED READING
High Frequency Trading: It’s Not Why You Lose by Jason Leavitt
