Stock Trading: The Danger of Acting in Anticipation

You find a stock that has formed a great base and is ready to break out. You are certain it will. You also know that some stocks zoom through pivots very fast, so you decide to buy in anticipation in order to take full advantage of the impending breakout. As soon as you do, YOU are ready for the stock to break out. You start wishing it to. But it just won't. You root for it, become another cheerleader on stock message boards but the stock hesitates and wobbles, refusing to go through the pivot. Then it starts sagging.

The prudent thing is not to buy in anticipation. If you do, the next best thing is to sell if the stock fails to act as expected. But you are already married to it, you cannot possibly be wrong. You may even buy more if it pulls back. The stupid market just does not get it! What's wrong with it?

You may become anxious, irritable and even mad at the stock. Then something unexpected happens: the stock drops on no news. Now what do you do? You can't possibly sell when the loss is so big. Buy more? You are no longer so sure that the stock is a zoomer.

It's good if some news explaining the weakness finally comes out: a secondary stock offering, an unprofitable acquisition or an accounting irregularity. But if none is forthcoming, you may be stuck with a dud for months. And each day you are under water, watching new breakouts pass you buy, you get more anxious to sell as soon as you break even.

For whatever reason, the stock just wasn't ready to move when you expected it to. It could have been the market, or a big seller, or a major operator adding to his stake before deciding to push the stock higher - who knows? But one day, when you least expect it, the stock begins to move up on strong volume. But you have accumulated so much hatred and frustration that you are glad to get out as soon as you break even. And you never want to look at this stock again!

Three or six months later the stock shows up on your radar, up 100% from where you sold. Your lack of patience and overconfidence hurt you twice: first when you were in the red during the premature move, then when you missed the real opportunity to make money. That's the danger of acting in anticipation.