Page 260

Traders who follow technical analysis try to do exactly that. For the rest us, only luck can deliver the promise of buying low and selling high (or selling high and buying low if shorting). In that regard, there are some items of interest in the world of stock trading which may come in handy for we average investors and help us with our trading decisions. Here is a list of some of them:

Hold Or Sell - What I like to stress here is that buy and hold is not necessarily always the prudent thing to do. Imagine that you have bought a stock that has doubled in value in a week. Should you sell or chase more riches? The theory of greed says hold. The theory of contentment says sell. The theory of irrationality says buy more. My theory? Try to put emotion aside and make a logical and rational decision. Ask yourself, how much is enough. And once you make your decision, don't waste time with regrets. The point is that sometimes the time is right to sell. When that time comes, go ahead and sell. Even if sometimes you have to take a loss. But most of all, don't rattle your nerves over the decision. We all have more important things in life to worry about.

Good News Effect - If a company is forecasted to release a good earnings report tomorrow, would it be a good time to buy its stock today? Not always. Many times you may notice that a company releasing good news actually ends up hurting its stock. Why? Frequently the good (or bad) news is already figured into the price of the stock. Consider this. Company A is a week away from reporting its earnings. In anticipation of a good earnings report card and fueled by analysts' rosy forecasts, investors push the stock price sky-high. The week passes and company A, true to the forecasts, reports the good earnings as expected but its stock price drops immediately after. Why? This effect is known as selling into the news and it happens frequently.With the earnings out and no other news anticipated, investors begin to sell their positions to …