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Trade What the Stock Is Doing, Not What You Want It to Do
I can want a stock to go anywhere. $10. $100. $1,000. Great. But what is the stock actually doing?
That question is much more useful to me.
It is easy to build a story around a stock. I like the company, I like the sector, I think the opportunity is huge and I have decided what I think it should be worth. None of that means the stock has agreed with me. The fundamentals can be great while the technicals are telling me something very different.
This is one reason I use technical analysis. Support, resistance, trend, swings, breakouts and price action give me something objective to work with. They do not guarantee what happens next, but they tell me what is happening now and give me a framework for what I will do if the setup works or fails.
Before I enter, I want to know the setup, the entry, the target and the stop. Then, when the commentary gets loud and FOMO starts creeping in, I have something to come back to besides whatever everybody happens to be saying that day.
That does not mean I become rigid. If a stock reaches my target and keeps breaking out with strong structure, I can change the exit strategy and ride the trend. That is responding to new information. It is different from moving the goalposts because I do not want to sell.
The same applies on the downside. If I bought around support and support fails, the thesis I entered on may have failed. I can exit. If the stock recovers and gives me another setup, I can buy it again. There is no prize for staying in a failed trade.
I cannot control what a stock does. I can control how prepared I am to respond to it. That is really the mindset: trade the evidence in front of me, not the price I wish I was looking at.
For the broader framework, read How I Think About Trading, The Market Is a Language, and You Can Always Buy It Back. If you want to understand the venture underneath many of the small-cap securities I follow, see Public Venture Capital.
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This article is part of my Trading & Markets authority series. Continue with Capital Markets hub, Trading Zen: Fear, Greed and Staying Level-Headed in the Market, Why Buying Is Easy and Selling Is Hard and The First Breakout: How I Look for Emerging Momentum.
This article reflects my personal trading approach and is for informational and educational purposes only. It is not financial or investment advice or a recommendation to buy or sell any security. Trading involves risk, including possible loss of capital.
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