One Question Interview with Jeff White

July 26th, 2006

To liven things up a bit, I’m introducing a new facet to the StockTickr Interview Series – One Question Interviews. I got this idea from Darren over at ProBlogger. The format will be (obviously) a single question and, like the standard interviews I’ve been doing, I’ll give no limitations on the response length or content (within reason). I’m hoping that these will be more frequent and more applicable to the current market conditions.

I thought I’d start off with Jeff White, a.k.a. the Stock Bandit, who was the first interview we published over four months ago.

Here’s the question for the first round of One Question Interviews:

What trading lesson(s) have you learned from the downtrend that started in May?

Jeff:

I’ve mostly been reminded of a handful of things which I learned in the past, but it’s always a good thing to revisit important lessons. I always try to stay aware of the psychology of market participants, because those emotions largely drive the buying and selling behavior of traders.

Here are 5 lessons that I’ve been reminded of since this downtrend started in May:

Shorts work faster than longs. Shorts work quickly (they call them ‘shorts’ for a reason!). Stocks can fall of their own weight when bids simply disappear and buyers walk away with disinterest. But when you throw a little fear into the mix, some very swift downside moves occur.

Trapped bulls sell into strength once the market tops out. This dynamic can last for a while as many are inclined to sell at the first sign of strength rather than buy. This in turn puts a virtual lid on the market, and it’s why upside has been so limited.

Broken rising trend lines are significant technical events, and it’s wise to take notice when you see that happen. The RUT is a perfect example. Small caps had been making all-time highs and the trend was so solid until the rising trend line broke in May.

Many traders lack discipline. I have seen several people walk away from trading in the past 6 weeks just because they’ve sustained losses in stocks which they refused to exit, hoping for a rebound that never came. HOPE is a 4-letter word, not a trading strategy.

The market won’t rally far without the NAZ. The NAZ has led the way lower, particularly the NAZ 100. Biotechs, semiconductors, and internets are among the most important sectors in our world today, and when those stocks trend down, it significantly handicaps the market. When those three important groups can start acting better, we’ll have much higher odds of a lasting market rally.

1 Comment

  1. TheStockBandit.net » One-Question Interview at StockTickr: Lessons I’ve Learned in the Downtrend Said,

    July 26, 2006 @ 6:13 pm

    […] Big thanks to Dave over at StockTickr for his One-Question Interview with yours truly. Dave has interviewed me before, but this one focused on “What trading lessons I’ve learned from the downtrend that started in May,” so I was happy to oblige! […]

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