December 10, 2006

This week's free newsletter serves as a good reminder of what we should focus on as traders: The Price Action.

My wife and I were at a holiday party this past week which a friend of ours was hosting.  It was a good way to spend the evening as we enjoyed dinner, mingled among friends and made some new acquaintances.

While at the party, one particularly amusing comment really stood out to me.  It came from a woman who, upon hearing that I am a trader in the stock market, went out of her way to let me know that I should buy a particular stock.  I was familiar with the stock but didn't let on, so in fun I asked, "oh is that a good one?"  Her serious reply was, "Yeah....at least that's what the Mad Money guy says."  I smiled and thanked her, moving the conversation toward another topic as I just laughed on the inside.

Partly at her comment, and partly at the "Mad Money guy."

Never mind that this stock just happened to be finishing a double since early August.  After all, if she heard on TV that it's a buy, then it must be good!

So what happened?

Well, in the 2 sessions which followed, this stock fell almost $8/share.  That's a pretty hefty correction in 2 days, and I feel sorry for anyone who took her suggestion and bought in the face of that selloff.  The sad part is that it might not be finished.  An attempted favor might well turn into a real disservice, but that isn't her fault.  It's just how the ordinary investor is programmed.

Of course, we think differently here as traders.  To us, it's not about what some talking head (or a friend) tells us is good.  We know better.  We know that rumors only push stocks for a few minutes (at best).  We know that momentum and support and resistance are what is most important.  To us, it's all about the price action.

As the year winds down, you'll no doubt encounter this very situation.  I'm pretty sure I will again too.  Just remember that it's a chance to chuckle on the inside and be thankful you're a trader rather than one of those other bozo's!

Here's to conversations away from the market this holiday season!

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Jeff White
President, The Stock Bandit, Inc.
www.TheStockBandit.com

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