For your enlightenment today, I bring you three topics: a swim story, a stock story and a TV story. All different, but all with the same theme. Let's see if they can help your trading.
First, the swim story. The short-course season is now over for both my girls and it had its highlights and its lowlights. Of interest to me, though, was neither a highlight nor a lowlight, but rather a plateauing in times for Diana's 100 Individual Medley or IM. Here were her meet results for the past 10 months:
May 16, 1999
Oct. 9, 1999
Nov. 19, 1999
Dec. 19, 1999
Jan. 16, 2000
Frankly, it was frustrating. Ten hours of practice a week, and virtually nothing to show for it? Even worse, her times for each respective stroke that make up the medley were
. So I couldn't figure it out, and wrote off the IM for her. These were respectable times, but to get to the next level, she'd need to break the 1:20 barrier as a 10-year-old. And to be among the top swimmers in the IM, she'd need to get to the 1:17 level or better.
But, whatever, it just wasn't there, so I kind of stopped paying attention. Honestly, if Diana's IM were a stock, I'd have been long gone.
Well, wouldn't you know it, a final short-course meet comes along this past weekend, and she pulls a 1:16.89. Sweet.
The point? Patience. We all get used to a certain rate of change, and when it's not there, we tend to get frustrated and give up. It's usually at the exact time that we're ready to toss in the towel and move on that the next "breakout" occurs -- with us on the sidelines instead of in the game.
That leads me directly to my next story, starting with a note from a long-time reader.
Gary: The stocks I have that are breaking out to new highs or out of bases are going nowhere or down, like Georgia-Pacific (GP) , Wal-Mart (WMT) - Get Report, Amazon (AMZN) - Get Report, Microsoft (MSFT) - Get Report, Alteon WebSystems (ATON) . Are you having the same problems? Do you think the market makers and brokerage houses read your articles and Investor's Business Daily and see these breakouts and say "Let's sell tomorrow because the Traders are going to buy now so there will be plenty of supply?" I am mystified at my picks and losses in an up market ... DK
What you voice is a common concern, and the same thought I've also had over the years. However, I've learned through experience that when stocks that break out go nowhere, it's not market makers, brokerage houses, evil traders or sun spots behind the malaise. Rather, it's just a market that's consolidating, marking time until the next move. As an example, let's look at Wal-Mart, keeping in mind the "Diana Moral": Be patient.
BBH vs. HHH
All this talk of patience leads me to my final story. Those of you who watched the
TV show this past weekend saw me issue a challenge to viewers: A vote for the
Internet HOLDRs Trust
was a vote for me; a vote for the
Biotech HOLDRs Trust
was a vote for
. In other words, I thought HHH was now in the driver's seat and should significantly outperform BBH, at least for the short term.
But how did I come to that conclusion? Let's look at both charts.
My point in showing these two?
Monday I talked about the virtues of being flexible and changing your mind. However, there's also a virtue in being patient, and
changing your mind.
The trick, though, is to know what direction to pursue at any given moment, so when I'm in a trade that seems to go nowhere, I usually have a simple rule: If I am long the stock,
and would still buy the stock
, I stay long the stock. In other words, I try to be extremely patient. However, if I am long the stock,
but would no longer buy the stock
, that's usually a good indication I need to think about exiting my position.
In other words, was there any reason to give up on Diana's IM performance? Any reason to give up on DK's Wal-Mart position? Any reason to abandon a HHH long? No, no and no.
But is there a good reason to buy BBH right now, other than counting on some kind of bounce? I certainly can't find any, and was gone from my BBH position weeks ago.
The bottom line? Quick payoffs to your trades are extremely nice to have. They are, however, not the norm. No, the norm for most stocks is, at best, a stair-step movement with occasional bursts up and out of congestion. It's during those sideways periods that we all tend to get a little frustrated and give up, usually to our detriment. So if you're looking for big gains, you need to ride out those little boring periods of malaise.
However, there's a time for patience, and a time for change. If a stock turns sour, and "down" seems to be easier than "up," then patience isn't a virtue: It's a vice.
Finally, is all this flexibility/patience stuff easy to figure out? No. Will you get it wrong? All the time. But keep at it, because great trading takes years and years of "just doing it." So, apparently, does being a great swim dad.
Gary B. Smith is a freelance writer who trades for his own account from his Maryland home using technical analysis. At time of publication, he held no positions in any securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Smith writes five technical analysis columns for TheStreet.com each week, including Technician's Take, Charted Territory and TSC Technical Forum. While he cannot provide investment advice or recommendations, he welcomes your feedback at