Monday, February 27, 2012

Confidence or Over-Confidence

Perhaps I had been a little too cautious to call on time to this rally last week when some technical indicators began showing some retreat being on the cards. Of course, I have always believed in trading with the trend and in an uptrend that hasn't been broken, my view of this uptrend is still in tact. But what I cannot stomach into current trades are the increased volatility and hence risk. Having said that, that does not mean I am suddenly turning bearish. I am just liquidating some of my holdings to make for a leaner portfolio so that my risks are well managed in this volatile and slightly backforth swinging times. I am also more cautious in identifying stocks to purchase and holding our for a clearer macroeonomic/STI development.

Volumes have been low lately and some stocks, especially the penny stocks, have been staging a retracement. For the long run or for the short run? Frankly, I do not have the answer, neither do I want to seek and gamble on it. 

This, I began to realise, is a very very fine line between confidence and over-confidence. 

Last week, in the still going uptrend, people were buying happily and everything seemed green and perfect. It was so tempting to continue to expand my portfolio and shop for stocks to buy. But my risk indicators told me that I should put a hold given the amount of cash remaining and in opened positions as well as my time horizon (I have 2 loan debts that I am seeking to finish paying by this year so certain liquidity is necessary). On Wednesday, I began calling time on the Dow's rise and suggested that it may be breaking out from its uptrend. I wasn't going to confirm the break in uptrend but I further elaborated that the risks and volatility were definitely higher than the last few weeks. But yet, on Friday, the STI improved in its performance and it still seemed that some resilience and upside was possible. Of course, this was psychologically and emotionally motivated. The biggest pitfall is the incessant reverberating call or claim in our minds that this trend is possible, this trend is possible. This trend is possible. 

Is this really possible? When I asked myself this question, I followed with another - Am I taking a chance? Once this becomes largely a probability game of chance, I am out. And it is as simple as that. Though being motivated by psychological emotions, I constantly ask myself and provide myself with the will to say "Hey, you are getting over-confident with your latest successes. Take your profits and get out."

I guess that was the best advice and questions that I had asked myself ever since the start of the rally. It is better to be sitting at the sides with reduced risks while waiting for the market to decide on its new/continued trend. No regrets still.

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