Technical Outlook: Protect Your Positions

Many of the talking heads were out again Thursday trying to call the bottom in the banks and specific areas of the market such as technology.

Those investors who felt we were too stretched to the downside and due for a significant bounce were caught blindsided as the market opened sharply lower Friday morning.

The one thing I keep cautioning investors about is trying to pick exact bottoms in specific sectors. At times you can get pretty close to forecasting the likely direction of one of these areas by the technical action, volume and sentiment indicators measuring fear and greed in the market. However, you still need to use protective measures in case your research is incorrect.

When you do get evidence that you feel gives you an edge and you decide to take a position, whether it is for the short-term, intermediate-term or long-term, it's still important to use a money management plan with protective stops in case your conclusions are wrong.

For example, the Powershares QQQ (QQQQ Quote - Cramer on QQQQ - Stock Picks) (formerly the Nasdaq 100 Trust) generated a lot of excitement Thursday, popping back up above the 200-day moving average on heavy volume and gaining more than 1.5%. The traders and investors who jumped in and thought that they were going to catch the beginning of a big move were hammered Friday morning as the index gapped down at the open.

Most investors who make these kinds of moves have no plan in place if the position turns against them, and they usually buy too much at one time because greed gets the best of their emotions.

« Previous Page

1 2 3

Next Page »