EUA e Irão chegam a acordo sobre cessar fogo após troca intensa de ameaças

[Powerman]

European Stocks: Trading vs. Investing
5/1/2007 6:15:30 PM




By Vadim Pokhlebkin

Some of the best advice novice traders almost never receive is this: Don’t ever open a position without deciding in advance at what point you’re going to get out.

An exit strategy often gets overlooked because novices are too impatient and busy trying to figure out how and when to enter a position. But that’s only half of a successful market-timing approach. Planning an exit point may not seem that important, but it is.

Experienced traders know how psychologically difficult it is to close a position – regardless of whether you’re winning or losing. When you’re losing, it’s hard to get out because you hope that your luck will soon turn around – so you wait. And if you’re sitting on a profit, you start second-guessing yourself: What if I get out too early and leave a lot of money on the table? And so you wait again.

In both cases, waiting too long could destroy you. A small loss today may turn into a gaping hole in your portfolio literally overnight. And if you don’t take your profits on a winning position soon enough, the trend may reverse and give your spoils to a more nimble player.

Because knowing when to sell is part art, part science that’s mastered only by a few, the most popular approach to timing the markets is short and simple – don’t. Just buy and hold. It worked for your grandfather when he bought that IBM stock in the 1960s, and it’ll work for you, too. Just don’t jump around too much, goes the conventional wisdom – and most investors do just that.

But for those who want a more active role in managing their money, market timing is crucial. Most turn to fundamental analysis – that is, watching economic reports – for clues on market ups and downs. However, fundamental analysis, which is pretty much all you ever see in the financial media, is of little use when it comes to market timing. Seriously, how does a quarterly GDP or a monthly unemployment number help you to know if your stock investment is ripe?

Technical analysis is better suited for picking tops and bottoms. You don’t hear about technical analysis too often – and yet it’s something that Wall Street professionals have used for years. Elliott wave is such a method – and arguably the most comprehensive one. In a single “package,” it helps you to 1) identify the trend, 2) stay with it, and 3) anticipate markets reversals.

Speaking of reversals, European stocks have gone nowhere but up since March 2003, as this chart of the DAX, Europe's benchmark index, shows. Even this February's strong global sell-offs couldn't send the DAX down ten percent – a "healthy correction" many analysts would welcome at this point:



Good for you if you’ve stayed with this four-year bull run. And maybe the bourses will continue their lucky streak indefinitely. On the other hand, given the rare strength and consistency of this rally, perhaps it's time to start thinking about that exit strategy?

"Warren Buffett," writes editor Tom Denham in his European Short Term Update, "buys what he perceives to be good value, and his favorite holding period is forever. I understand and appreciate that approach, but trading is an entirely different game. Traders buy stocks and not the companies that stocks represent. Traders sell stocks when they quit going up, regardless of the value of the underlying company. For a trader, the point of owning a stock is to exploit movement. If a stock is not moving, it might be an investment, but it is not a trade.

"European stock indexes have been in an overall uptrend since March 2003. Bottom line, markets are at a place where it is important to know the difference between trading and investing. I am enthusiastic about trading right now. I’m not enthusiastic about investing."