We were all looking for a pullback, weren’t we? As an active investor, you must use market psychology in order to gain good entry points on pullbacks.
When you are in strong markets like we are now, you need to be patient and use pullbacks to get into your best ideas during normal and expected sell-offs. I always hear traders and investors say, “I am waiting for a pullback to get inâ€, but when the pullback comes too many people hesitate and then watch as the market hits another higher high.
Since the bottom of the bear market in March of 2009, we have had more than the normal amount of 5% sell-offs, although the misconception is that we have gone straight up. Each sell off has been sparked by different things, each scarier than the last.
While the news and pictures from Japan are scary, and my heart goes out to all those effected by the tragedy, events like this are exactly what creates opportunity. When even experienced traders are staring at TV screens talking about nuclear apocalypse, you can bet all the froth is out of the market. You should have you “watch list of best ideas†ready with prices you would love to buy. When it takes a barrage of headlines to take a market lower, and then an absence of headlines sends the market higher, that tells you that you should be buying pullbacks.
For me, that watch list of best ideas means my “Top Ranked Magnet Stocksâ€. I have been a buyer each of the last three days and continue to see opportunity. Control your own emotions and use those of others to profit, that’s the name of the game for the disciplined long-term investor.
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