Money
& Investing 
Avoid "Revenge Trading", Have a Set Plan! Learn from the Past; Look to the Future
I had a friend, John, who had a successful insurance brokerage firm in Los Angeles. He sold it for a nice sum. With time and money on his hands, he decided to venture into currency trading. He diligently studied various trading methods.
To be honest, I was bit concerned about John because he was the very outgoing, super-salesman type -- very emotional.
After approximately three months of trading, he called me, and in our conversation, he said he gave up currency trading. He said he was too emotional to handle it. He said he was getting too much into "revenge trading".
Revenge trading is a basic indication that your emotions have gotten the better of you. Instead of using a disciplined trading strategy using reason, you are breaking the rules and trying desperately to get back losses by making trades without any specific plan in mind.
That is financial suicide.
However, it can be tempting, especially after 19 months of a bear stock market. You may have had a stock you bought at a very high price that subsequently dropped, so you sold it and lost some money. The lure is to go back into the same stock to "get your money back". Revenge!
Forget it!
A disciplined investor is one who is not trapped in the past. Instead, he or she learns from the past and looks to the future. When a new bull market begins, it will often bring about new market leaders. The smart investor is looking for that development and not concerned about getting even with an old trade.
New leading stocks will be the ones making new highs and with good earnings projections for the next year or two. Also, they could be leaders in an industry group that is coming on strong, or better yet, developing a dynamic, new product. Also, one needs to be alert for new faces -- A.K.A., IPOs.
Some issues that are acting well and could continue to lead are Myriad Genetics, Inc. (MYGN), Green Mountain Coffee Roasters, Inc. (GMCR) and Illumina, Inc. (ILMN).
Myriad Genetics' stock has soared from 17 approximately a year ago to a peak of 47 in March. It has since backed off to 38. The company is developing drugs to treat cancer.
It is now testing MPC-3100. In preclinical testing, the company said the drug demonstrated potent anti-cancer activity in xenograft models of breast cancer, myeloid leukemia, lung cancer, melanoma and gastric cancer.
Analysts project that Myriad's earnings for the fiscal year ending June 30, 2009 should soar 82 percent to 93 cents a share from 51 cents a year ago. For fiscal 2010, they project an 89 percent gain in net to 1.75 a share.
Green Mountain Coffee's stock is percolating. It has soared from 12 in late 2006 to 53. It recently hit a new high. The firm produces high-quality Arabica coffees. Net for the fiscal year ending September 30 should jump 50 percent to 1.31 a share from 87 cents a year ago. Looking out to fiscal 2010, The Street expects a 29 percent gain in net.
Illumina's stock has climbed from 7 back in 2006 to a peak of 47 last year. It fell back in late 2008 but is coming on strong again. The company makes genomics research equipment. The systems are used for genotyping, gene expression analysis and DNA sequencing.
This year, analysts expect Illumina's net to jump 46 percent to 92 cents a share from 63 cents a year ago. Next year, they project a 32 percent gain in net to 1.21 a share.
Some top money managers have some good advice to avoid emotion trading or revenge trading.
Thomas Basso, a top trader who wrote a book called Panic Proof Investing gives some good advice on how to avoid the emotional trading trap. He was featured in the outstanding book, Market Trading Wizards.
Basso strongly suggests having an investment strategy. He also says one should study all the various scenarios that play into the plan. The key, of course, is preparation. Most importantly, Basso says, one should not use investing to get an adrenaline flow. It should not be used as a proxy for gambling or looking for excitement.
"If one is looking for a setup, then I'd say sit on your hands until you get that setup," Basso says. "For example, a lot of day traders feel like they have to day trade every day or they're not a trader."
Basso strongly believes if you don't have the proper setup and the proper conditions to pull the trigger, you wait until you do.
He also suggests keeping a trading diary. He says one should write down why a trade was made. If a trade was done that overrode the strategy, that should be tracked too.
Then, he suggests that one should go back and look at the trades that were done overriding the system -- the "subjective decisions". He says, in most cases, one will find they added very little to no value.Mr. Fasciocco’s is publisher of Ticker Tape Digest at www.tickertapedigest.com. He is a contributing writer for several publications. Mr. Fasciocco can be reached at leo@tickertapedigest.com
