How to Avoid Panic When the Train Leaves Without You
The Smart Profits Report: Issue #281
Tuesday, February 7, 2006
How to Avoid Panic When the Train Leaves Without YouBy Dean Albrecht
Advisory Panelist, Mt. Vernon Research
A few weeks ago, I traveled to meet several clients. I had a few hours between meetings and decided to check out some of the better-known landmarks.
With my dinner meeting fast approaching and no cabs in sight, I decided to take the train back to my hotel. I rarely get to take the train and thought it would be enjoyable. When it arrived, I boarded without knowing exactly where I was headed. I searched for some landmarks and got off at what seemed to be the right stop. And I ended up in a not-too-endearing neighborhood. Only, there was more ‘hood than there were neighbors.
I was in the middle of an empty, boarded-up area on the side of the road next to the train tracks, wearing a Polo, khakis and a baseball cap. The train choo choo’ed away and I was left there, eyebrows cocked, a little smirk on the kisser, thinking, “I need to blow this Popsicle stand… and fast.”
I got on my cell phone to try to arrange a pick-up. On the other end of the phone, my host yelled, “You are where? Holy smokes, guy - we gotta get you outta there!” (Believe me, that didn’t ease my comfort level.)
Saved By Buffett’s Golden Rule
I should have had the patience to find the right station. I should have done my homework prior to getting on the train and put together my algorithms: If the train leaves from this station, and the restaurant I want to get to is in that area, I want to get off here.
If only I had applied the rules I use to make money in the markets…
One of the overriding tenets in investing or trading is to have patience and good planning.
As Warren Buffett says of the market: “It’s a place that offers up opportunity on a daily basis and you don’t have to swing at every pitch.”
Wait for YOUR pitch. You should have a set of rules to lean on before swinging at a pitch. Here are few simple ones…
If the broad markets are in an uptrend, then you would be well served to favor the long side on trades. If you go short on stocks when the market is in an uptrend, you have to be prepared to live with the fact that a rising tide lifts all boats. Likewise, if the market is going down, you would be well served to play the short side predominantly, as a low tide brings all boats down a few feet.
If you are playing the long side of a trade or position, you should take a look at the trend of the sector first. For instance, if the chip sector is moving up, then you should feel confident in taking positions in that sector and you should expect a higher return on the stocks in the sector than in the sector itself.
How to Profit from the Semiconductor Sector
There are times when this doesn’t work out as planned. Admittedly, Intel (Nasdaq: INTC) and Texas Instruments (NYSE: TXN) have had a hard time as of late, but have you seen the mid-tier companies in the semiconductor sector, like XLNX and others? They have been going up nicely. So in this case, if you are a pullback buyer, you buy the SMH to get exposure to the sector, and you buy INTC and or TXN to get exposure to a good company that might be experiencing a short-term “retracement,” as it is called in the technical world.
Furthermore, the semiconductor sector has been in an uptrend since November, and that would have been the time to take your more meaningful positions and buy on pullbacks on the way up.
There is more than one station in this game. If you miss the train at one stop, don’t fret. Just have the patience to get on at the right place.
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Today’s Smart Profits Cribsheet
- Today’s report offers ways to avoid panic in the marketplace. In Smart Profits #264, 1.8 Billion Ways to Improve Your Trades, I give details about back-testing and other winning strategies available in The ESP Profit System.
- And for a quick primer on options success, please read Smart Profits #228, Fundamental Analysis - Three Screens For Technical Traders.
Good Trading,
Dean
Related Articles:
- How I Use The ESP Profit System to Make Millions for My Clients
- How to Use Puts and Calls for Systematic Short-Term Profits
- Short-Term Options - Two Ways to Make Them Work
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