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Anatomy Of A Trade: Knowing When You Are Wrong


In the market analysis and financial punditry field where I live and work, admitting that you got something wrong or that a move took you completely by surprise is frowned upon. We are all supposed to believe, or at least make others believe, that we are infallible, that we only make good calls, and that we see everything coming. That may be a good attitude from a self-promotion and marketing perspective, but it is not very helpful to the reader. The fact is that in trading and investing, we all make mistakes. Whether or not you can recognize them before too much damage is done and how you react to them will ultimately decide your success and failure.

I thought about this last week when an adjusted stop forced me to see the folly of a trade that, on the surface, made sense, but that just refused to work out.

The stock concerned was Alliance Resource Partners L.P. (ARLP). They are a limited partnership focused on coal and, when they released earnings that beat expectations on the first of this month, the stock soared. That wasn’t a fluke as they had been making good money consistently since mid-2020, but I convinced myself it was something that just couldn’t last. After all, ARLP is a coal stock and coal, as we all know has at best a limited future.

At that time, Joe Biden, after trailing in the polls for a long time was making a bit of a comeback and seemed determined to shore up his base by moving to the left on most things. The weirdly named Inflation Reduction…

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