Monday, August 13, 2007

Market Timing vs. Gypsy Luck

Our repurchase last week of EXC at $72+ prompts a serious discussion of timing, it seems to me. What the heck was I thinking last Thursday when EXC traded over $77? Why didn't I sell for a $250 profit?

In a word, Greed. I kept thinking about that $90 takeover price our Hot Tipster mentioned, and I wanted to make $1,000, not $250. This is the tough part about stock trading: When to sell. Do I take the profit now on the table? Or do I go for more? Or, in reverse, do I take my losses now, or do I hang on and hope for a turnaround?

No easy answer here, folks. Whatever one does, it won't (or very rarely) be the absolute best you could have done. No one in their right mind thinks they can buy at the very bottom and sell at the very top. It just doesn't happen that way, unless you are a gypsy and have perfect luck built into your gene pool.

The answer then, at least from most expert traders I know, is to plan your work and work your plan. That is, whenever you buy a stock, know exactly when you are going to get out. That was my mistake with EXC. I didn't have a plan. I just bought it again and hoped it would go higher. You have to say, beforehand, that I'm going to sell at this price if it goes up, or at this price if it goes down. Have a plan. Stick to it.

So my plan for this week: If EXC drops below $70 a share, or rises to $75, I'm out.

I'll update here when and if EXC moves to either level.

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