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  • The Market's Changed -- So Should You

    By Rev Shark
    RealMoney.com Contributor
    5/26/2006 8:43 AM EDT

    "The greatest discovery of my generation is that a human being can alter his life by altering his attitudes of mind."

    -- William James, philosopher & psychologist (1842 - 1910)
    As investors and traders, the most important action we can take after the selling of the past two weeks is to alter our thinking about the market. The market has undergone a change and if we don't adjust the way we think, we are likely to have great difficulty producing gains.

    There is the possibility that the market may recover from this very intense "pullback" and return to where it was two weeks ago, but that is extremely unlikely. Selling like we have seen changes the mood, attitude and thinking of market participants. Some who have suffered losses simply want to return to even so they can escape this misery; some are looking to play an oversold bounce; and some are looking to short aggressively at some point. Few expect a quick recovery and I believe they are probably correct.

    If the market doesn't do a quick U-turn we have to realign our thinking to deal with the new environment. The shorter-term trend has turned down and that means we should be less willing to ride stocks to the upside, more careful to protect our capital, and we should shorten our time frames.

    The best way to get in trouble in a market like this is to buy dips with the hope that the market will bail you out. In a strong uptrending market a very lucrative strategy is to buy dips and sell strength. Since the market is in an upward trend you are likely to see quick reversals to the upside and that can produce some good trading.

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