You remember (they show it on TV every year)
the running of the wild bulls in Pamplona,
Spain. Some of the nuttier people get out their
capes and stand in their path as they come
roaring down the street.
Our would-be matadors wave their home made
cloaks at the bulls hoping the bulls will charge
at it and not at them. The list of casualties at
the end of the day is sometimes quite large,
but, fortunately, not too many are killed.
These two participants, the bull and the
make-believe matador remind me of the those
same participants in the stock market. The bull
is Mr. Market and the matador is the
Why do I call him a "make-believe investor".
Because as a former 17-year exchange member,
floor trader and brokerage company owner I
have had many clients who thought they were
"investors". As a professional I would watch
many of the dumb things (like standing in front
of a charging bull with a rag in their hand)
that clients would do with their money. Many
times I could talk them out of it, but others
they would insist on being gored.
The professional trader learns very quickly
that you cannot stand in front of a charging
bull who happens to have the shape of a stock
market that is going full speed either up or
down. Investors love those upward moves, but
a few will say I have a nice profit now so I'll
cash in and take the money only to see their
stock, mutual fund or ETF (Exchange Traded
Fund) continue its skyward journey.
The problem was they were guessing that their
price was at or near the top of the move. Is
there any way to know what is the highest price?
Actually 'NO', but there is a way to catch a
very large percentage of the price advance and
have Mr. Market tell you when to sell. How? Let
me show you the time-honored secret of the
long-term professional traders.
Stocks do not make an orderly procession to a
top and then turn down in an orderly fashion.
They move in stair steps up sometime 2 steps up
and one step back or 3 steps up and one step
back. Many times they will rest for long periods
and consolidate. What you can do is place a stop
loss order that should be moved up as your
Suppose you bought AT&T at $50 several years
ago and had followed it up with a 10% or 15%
stop loss order. It went over $100 and then
started down to below $15. If you had been
following with your stop you would have sold out
about $85 or $95. The charging bull when it
changed direction would not have gored you.
There is nothing to fear as long as you are
protecting your investment with stop loss
orders. The bull is your friend as long as you
have protection when his direction changes.
Al Thomas' book, "If It Doesn't Go Up, Don't
Buy It!" has helped thousands of people make
money and keep their profits with his simple
2-step method. Read the first chapter at
http://www.mutualfundmagic.com and discover why
he's the man that Wall Street does
not want you to know. Copyright 2005.