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Trade With Conviction But Also Caution

In most cases, conviction is a terrible trait for traders to have. Believing that you are right and the entire market is wrong is an almost surefire way to go bankrupt. It leads to averaging losers and other behavior that will quickly turn misfortune into disaster. That is why I bang on so much about having a stop loss in place, or at least a cut level in mind, whenever entering a trade. Even the best reasoned ideas can go wrong. There are times, however, when, especially from a longer term investor’s perspective, courage of your convictions is a good thing.

Right now, for example, anybody who follows the energy market knows that oil, and therefore energy stocks in general, will find a bottom somewhere…it cannot go to zero. The fact, therefore, that we have had a couple of false starts shouldn’t stop us trying again. I for one will freely admit that my initial view was that the $60-65 level in WTI crude would provide support. I was wrong and we sailed through that particular “support” without a pause. The next level I, and many others, identified was in the mid $40s. So far that seems to be holding.

Hopefully, if you did buy either oil or related energy stocks when WTI was at around $65 you have long ago hit your stops and forgotten those trades. If so, or even if not, the support that we are seeing at these levels should prompt you to dip your toe in the water once again. Cautious accumulation, though, rather than reckless…

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