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Investors: Don't Let Paper Gains Become Paper Weights


To remove the emotional aspect of trading, active investors should remember to exit positions just as they entered them: in pieces.

Editor's Note: The following was posted in real time on our premium Buzz & Banter (click for a free trial).

Hey, I'm bullish this year. Yeah, I said it. The market is technically in good shape over the mid term and heck, the financials are leading the market higher! (See Financials Leading Market, but Watch for a Pullback) But, short term, not so much. In fact, my portfolio is slightly tilted to the short side. Why? When markets start to rejoice and high-fiving goes viral, the message is simple: It's time to start thinking about banking some coin.

Remember that strategy buy low, sell high? It's not rocket science (or an exact science, for that matter), but it does become ever more difficult when we get emotionally attached to our investments. Think of it this way, if someone told you that they would give you $180 for your $100, would you hold out for $190? And further to that point, what if the TV and media were saying "it'll be worth $195 or $200 for sure!"

To remove the emotional aspect of trading, active investors should remember to exit positions just as they entered them: in pieces… one-third or one-half at a time. That way, if it continues with the trend, you will still be involved, and if it moves against it, you'll have freed up some cash to buy lower. Easier said than done, especially when they are my thoughts on the matter. And it's even more difficult around trend changes, as the market turns into one big mind trip. Remember, gaming short term moves in the market is for active, experienced professionals.

Below are updated technical charts with support and resistance for the S&P 500 and the Powershares QQQ Trust (QQQ) – note the QQQ is the proxy ETF for the Nasdaq 100 Index. Note as well that the potential inverse head and shoulders on the QQQ, if triggered, could ignite a big rally at some point this year.

Editor's Note: Andrew Nyquist is an independent investor based in the Minneapolis area. This article originally appeared on his investing and economics site, See It Market. His writings also appear on Minyanville's blog community.

Twitter: @andrewnyquist
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No positions in stocks mentioned.

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