Wednesday, September 29, 2010

The Daily Note - Fight or Flight

Sometimes I am amazed about the topics that come into my mind to write about. Take yesterday's article. It is first draft and short, to the point. I was just about to add some of my embellishments when surprisingly the opening bell rang, and I decided to quickly publish it as it was written. I had no idea what was about to happen. It is why I have faith in a spirit much wiser than me, who somehow infuses into my psyche very timely topics. Usually I would not publish such a unrefined article, often regretting it later, yet something compelled me to just toss it up on my site. What happened next is, as everyone knows the morning "flash" crash of AAPL among others. Hence, my article today.

Trading is serious business. The purpose of this business is to earn money the hardest way possible: Intelligent guessing.

Trading is also a game; a game of wits. It requires agility, quick recognition of patterns and changes and quick reactions to what we see. Reactions do not necessarily mean action; it can mean, non-action. In other words holding back and not acting on the urgent instinct which is associated with fight or flight.

Yes, Fight or Flight is a very strong instinct and I think it's one of the hardest for traders to control when the unexpected happens. Case in point was Tuesday morning flash-crash of AAPL among others. The fight to hang onto shares or the flight to let got of them, if one holds the equity takes high psychological strength.

Equally it takes quick agility and clarity to jump in for us traders if we are ready to take advantage of the opportunity. Both however require what I call a sanity check. Reason has to be present and the quick assessment of possibility must be done. First and foremost the possibility of buying in and then the possibly suffering a reversal is in the frontal lobe of the mind. Emotions are high and a wrong move could become costly.

Inevitably if a trader is unsure, it's best to do nothing.. it's what stops are for. For the rest of the traders, or for those willing to take a high risk, the only question remains is how well they know patterns and how quickly can they recognize them.

When concentrating on the movement of the stock, allowing it to play out and show it's pattern, will give a trader more control and assurance of a gain. The knowledge that the panic selling will eventually end and that sanity will return is an experienced traders biggest asset, controlling at once the instinct to neither fight it nor run from it.

Happy Trading, Living and Dancing

The Daily Pick - AAPL

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