A Huffalump did his business here...: Trading Is Timing

Saturday, October 07, 2006

Trading Is Timing

Trading always comes down to timing. To truly appreciate this, we simply need to note that one of the biggest gains in stock market history occurred on October 19, 1987, during the day of its greatest crash. On that day, stocks had declined a mind-harrowing 23% by the end of the day, but at around 1:30pm, they staged a massive rally that saw the Dow Jones and S&P indexes verticalize off the bottom, rising more than 10% before running out of steam and turning down to end the day on the lows. While most traders that day lost money, those who bought that bottom at 1:30pm and sold their positions an hour later were rewarded with some of the best short-term gains in stock market history. Conversely, traders unfortunate enough to have shorted at 1:30pm only to cover in panic an hour later held the dubious distinction of losing money on their shorts during the day of stock market's greatest decline. If nothing else, the stock market crash of 1987 proved that trading is all about timing. Timing is hard to master, but you can still capture significant gains on an ill-timed trade if you follow a few simple rules.

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