Albert Einstein once said “A man should look for what is, and not for what he thinks should be.”
Price action is the only thing that will tell you where the stock is headed. Everything else is opinions, hopes and dreams. You need to trade price action and ignore the message boards, chat rooms, projections, news events and other garbage. When trying to predict where a stock will go because news or a new product was just released is like trying to predict where the market will go. Remember, the market is always right. Have you ever seen a company releases earnings that were better than expected and the stock drop, or a company release earnings worse than expected and the stock rallies? That is because sometimes information or anticipated news/products are already factored into the price of the stock. Never try and justify the reason why you are still in a stock that isn't doing exactly what you want or predicted to do. When you start justifying the reason why you are holding a stock, you need to get out of it.
Today was a perfect example of this regarding ERBB. Last night in chat, about 3 people kept asking how much ERBB would spike tomorrow because they just released one of their vending machines. My only advice was to watch price action and be cautious of any pot stocks due to the recent rash of MMJ stocks getting halted (5 in the past month). They just kept on about how this company was “real” and had “real products”. I reminded them that PHOT was real with real products and they got halted, but I guess the advice went unheeded. Well I logged into chat this morning before the market opened and about 15 people were all excited about ERBB and trying to predict how much they would make today on ERBB with their recent vending machines. They noted that ERBB was already up 21% in Pre-Market. I once again advised to trade price action, as the news of the vending machines might have already been factored in the price of ERBB. I also stated that IF I got into ERBB it would be during a dip AFTER the Pre-Market profit takers. Well sure enough ERBB went from opening at 21% to 25% in the first 5 minutes. Chat was lighting up with ERBB cheerleaders. Well then the predictable pattern happened and ERBB starting to dip down to 18%. Some people jumped in, I held off, advising that I believed ERBB had more room to dip. It then went up to 20%, then back down to 15%, up to 18%, down to 10%. I decided I wasn’t going to enter ERBB, so it was time for me to head to bed. Before I left the chat, the last message was somebody saying ERBB will skyrocket when they release news later in the day. I just closed the lid on my laptop and called it a day. ERBB closed -5% today.
Morale of the story:
#1 – The market is always right
#2 – Never try to predict news
#3 – Remember, just because news or a product just got released, that catalysis might have already been factored into the price of the stock
#4 – Trade price action
#5 – Most of the time, activity in After-Market & Pre-Market is irrelevant. Don’t let AH & PM dictate your plan
#6 - Don't attempt to justify the reason why you should stay in a trade
Disclaimer: At the time of this post, I no longer hold a long or short position in the above mentioned securities. I may or may not re-enter a long or short position in the above mentioned securities without notice after the publishing of this blog post. I have never been compensated in any way for my mention of the above securities.
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