November 14, 2012
Another ridiculous panic type day because of worries of the fiscal cliff. The fiscal cliff doomsday scenario won’t happen. Congress will undoubtedly replace the fiscal cliff with a similar one much farther down the road, and thus push off dealing with it for a few more years.
“Investors”, and I use the term loosely, sold anything and everything in fear that the dividend and capital gain tax rates will go up if the fiscal cliff is reached. Almost all dividend paying stocks went down substantially; looking at my list, most are down 3-5% today. Really dumb, but we will use this to our advantage in buying great assets at better prices.
Moving on to our Silver Wheaton trade, let’s analyze what happened, and the lesson to be learned. No matter if you win or lose, you need to look at what happened and see if you could have done things differently.
Silver Wheaton dropped 6.69% today, caught in the sell-off, and triggered my stop at 37.40. It closed at 36.51, at the low of the day. So my stop-loss limited my loss today.
Lesson: While I am not happy to lose money, I followed my system, and that is important. I saw a high potential investment, took a position, and limited my risk.
There is no easy answer as to whether I should have exited my position when the breakout was lackluster, volume was low, and there was no follow through the next day. Seeing this, I knew my chance of profit declined substantially.
But the trade itself really needs to show me its outcome, not what I thought was going to happen. The stock did stay above my stop price for a week, even rallying back to 40. So the price action was positive, despite falling back into its base. But overall, the market tone became bearish over the last week, and most stocks follow the overall trend, which is down right now. So the stock fell and stopped me out.
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