Any investor can find and research the “greatest” stock on the market; one with huge potential but if the general indexes are negative, it will most likely be the wrong time to buy. A stock with accelerating earnings, rising sales, an up-trending chart pattern and a strong industry group may sound excellent to buy on the surface but will mean absolutely nothing if the market is positioned to move in the opposite direction of your expectations. As soon as a stock is purchased, the time comes for an investor to make a decision to hold or to sell. If the position shows a profit, hold as your judgment is correct. If the position shows a loss, cut it quickly and don’t rationalize the situation before the loss doubles in size. Timing will play an important role in determining if you are right or wrong.

Losers must be cut quickly, long before they materialize into enormous financial disasters. The company and underlying stock may not be a loser but rather your timing may be premature to a strong movement, forcing you to sell on a pullback. After a stock is cut from your portfolio, the transaction must be forgotten about and eliminated from your subconscious mind and/or emotional bank. This may sound as if I am contradicting myself from Monday but I am not. I said the transaction must be eliminated from your memory bank but not the actual trade. (more…)