Saturday, May 30, 2009

Shoulda, coulda, woulda

is a game most traders play. I went bullish on Goldcorp (GG) and Novagold (NG) at almost the exact right time this spring for a trade, but bailed when things didn't play out exactly like I had planned. This was a mistake. This is the problem with trying to trade a bull market.

My previous analysis on Novagold (NG), in retrospect, looks pretty damn good if I may say so myself. But I didn't make a dime on the trade and I am of course kicking myself. Here's what happened to me in real-time:

When to have conviction and stand your ground and when to take a small loss/break even and move on is the life of a trader. I expected something to happen in a certain time frame and it didn't, so I bailed.

My point in showing you my mistake is to return to a valid question: why trade a bull market, why not just buy and hold? I know that a new bull market in Gold stocks started this fall and I know it will last several years, so why am I trading? As is often the case, the best answer is greed. I want to leverage the profits of the Gold stock bull market using options, which have a finite life span. The risk of this strategy is missing out on profits due to timing mistakes, as this example clearly shows.

For most, a buy and hold strategy makes much more sense. This will be my plan later, once I think this cyclical bear market in general stocks is near finished (we're not even close, by the way). Because I expect Gold stocks to be pulled down in a correction with each steep new bear leg down in general equities, my plan is to avoid the steep corrections with most of my trading capital. In this case, however, I ended up missing a steep bull move! As, they say, can't win 'em all...

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