One Question Interview with David Hannan

August 4th, 2006

Another One Question Interview, this time from David Hannan. David answered my call yesterday for responses to the first question in the One Question Interviews. I think David’s viewpoint is especially interesting because he just started trading in March (what a time to begin!). Thanks, David!

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

David:

I’m new to trading – just started this March. I started by using Fundamental analysis (Cramer’s book got me started). It was easy for the first two of months – just find a stock with good fundamentals, trending up, and hop on board. Of course the thing that concerned me was that I would make money and then loose it because the stock pulled back a little, but eventually continue upwards. I tried selling some when it ‘looked’ like it would pull back and sell too early . That is what drove me to read books on Technical analysis. I finally found blogs – Barry Ritholtz’s at first and then others: TraderMike, Kirk Report, Tim Knight, your site, etc…

So I though I would try to trend (swing) trade but that is when the market topped out and started down. So I sat on the side still reading, and looking for stocks that were still trending upwards. One think that I thought about while reading blogs was that it seemed like it would be easer to day trade this market than find a trend (one of your interviews seemed to confirm that idea). So I find stocks that are still trending and with good fundamentals (PEP is one) and that brings me to my second troubling thought. How do I know if this stock is really trending upwards when I jump on board the pull back, or is the pull back a real trend reversal. So I found ODFL – yes I know that the market is slowing and that inflation is rising, so trucking is not the best to be in, but ODFL did have good earnings, and was trending up. So I bought a few (not many) shares. After I bought and was studying the chart some more, thinking that I bought on a pull back, I noticed that the damn think is forming a head and shoulders pattern. As of this morning I’m up a little above breakeven and am seriously considering bailing out.

Lessons learned:

  • Maintain discipline with your money – set stops and live by them, if I’m wrong, which I seem to be more often than not since May.
  • Don’t quickly jump back into another trade but keep reading, looking for stocks, and take your time studying the charts. Actually I shouldn’t be trading at all but I find that I learn more when I fail on a trade than by pretending to trade.

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