Though the market was up hardly a few points today, it was quite a good day if you trade momentum stocks. I booked profits at the open, and seeing the weak close, decided to go fully in cash. Thinking about it, there were many factors behind this decision. Firstly, I see a feeling of complacency setting in bulls out there, which makes me think a pullback might be around the corner. Even if this pullback does happen, I would rather use cash as a hedge than go short. The other reasons behind going in cash today were more personal. Thanks to today's Chart of the Day, MGIC, which was up 16% today (I hope you readers benefited from the call! I did not catch the entire move but quite a decent bit) and overnight holds in LOCM and KOG, I managed to meet my monthly goals today. No way I was expecting to meet them before even half of the month was over, but I am not complaining! I am sure the last two weeks have been great for you readers too. But the thing is I was beginning to see overconfidence creeping into my trading. Thoughts like increasing the position size, and making the most of this run while I could were creeping into my head. Now, I have learnt the hard way that whenever overconfidence starts to rear its ugly head, its best to step on the sidelines and let things calm down. I guess this was a more important reason that overall market conditions to go fully in cash today.
As for you readers, I have just one piece of advice. Please don't forget to take profits if you have done well during this rally! Nobody ever got broke taking profits. Seeing all your profits can be one of the hardest thing to deal with physiologically in trading. I still remember going for the home runs and not taking profits when I first started trading. At some levels, seeing those profits disappear can be even harder than taking losses. I have heard a lot of people say that a profit is a profit and a loss is a loss only once you sell. I say that that's bullshit. But more on that some other day.
Take care and good luck!