This column was originally published on RealMoney
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On Thursday, I talked with several traders about how difficult it can be sometimes to hold a trade that goes against you from the start. The stock doesn't pull back so fast or far that it triggers your stop, but you just start feeling bad about it almost immediately. Do you just sell it and move on, or do you sit there and slowly bleed to death?
I suggested that new trades be treated like new employees. When you are first hired for a job, you are expected to show up for work. But you aren't usually expected to hit the ground running as if you've been there for 20 years. You're given time to get your feet wet. Even the toughest taskmaster shows you where the coffee machine is.
But it's a bit difficult for an employer to give a new employee time to adjust if every last dime has been spent on that employee. I remember when Mike Ditka traded away the New Orleans Saints' entire 1999 draft to draft Ricky Williams. The pressure on Williams was too intense; the Saints essentially had bet everything on Williams.
We can make the same mistake by taking an outsized position on one stock. When we get too big too soon, every little pullback is a big deal.So try building a position slowly. This gives you breathing room, so you in turn can give the trade a chance to live up to its potential. Do that, and you'll find yourself holding a stock through healthy pullbacks rather than selling reflexively at the first little hiccup. OK, let's look at some reader picks: Research In Motion (RIMM), Cummins Engine (CMI - Get Report), Lexmark (LXK - Get Report), Grupo Simec (SIM - Get Report) and Costco (COST - Get Report).
Research In Motion has been bumping its head against $140 since November. During the past couple of months, the stock has been rangebound. This has allowed the 50-day moving average to catch up with the stock and begin rolling over. I believe a move back down to $120 is more likely than a breakout above that range. If the stock failed to bounce again from that level, I'd sell in a hurry.