Should I, or shouldn’t I? Sometimes that’s not the question. The question should be: how much?
Many traders/investors freeze up when their ‘alerts’ go off- even when they had gone through the work of identifying a stock and the price they want to take action. Today, we got the unfortunate news of yet another earthquake and tsunami to hit Japan. We are getting this news as we have rebounded to the top of the trading envelop in many indexes and individual stocks.
For more on this subject, watch my video below.
Each stock is in a unique place within its trading range. Despite seeing us near “the top of the envelop” in the indexes, several stocks set off alerts for me yesterday. Rather than pass up the trade, I simply placed a “tier 1” amount of money to each idea. If the base was sound and my entry point was good enough, I‘ll be able to stay in the position and add tier 2 as the stock proves itself. Who knows, despite today’s news and the position of the overall market, one of these positions could prove to be this year’s biggest winners. I would have to look back and regret not getting involved.
I am moving back to tier 1, from tier 3, in other positions just to remove some risk. While I have confidence in these companies to move higher over time, I also want to make sure I am booking profits and not sitting though round trips.
Using the tier system takes away the indecision in trading. You never know which positions will be the big winners. You need to follow discipline and remove the emotion that almost always works against you.
*DISCLOSURE: No relevant positions
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