Back to the Basics

These last couple of months I've allowed myself to get a bit off track. I subscribed to the Wall Street Journal, I started listening to stock radio shows, and I began participating in a trading forum online. I think I began to get overly confident in the "knowledge" I was gaining and I tried to cram all of that information into a new trading strategy.

I started using some market indicators that supposedly told me when to be aggressive and when to run to the sidelines, and I began using a spreadsheet that calculated the best time to get out of a stock to lock in gains or to avoid big losses. I went to all cash for a couple of weeks and avoided trading (boy that was hard).

With all of that fantastic use of my brilliant trading mind, I managed to loose 25% of my YTD returns by the end of November. When I compared that to my Zweig Relative Strength top 5 screen I was a bit shocked and more than a bit angry at myself. If I would have ignored everything that was going on and just plugged money into that screen, I would have MADE 4% during the month of November. That's a 29% difference between my returns and the returns of an unemotional and completely computer-selected screen.

So, I think that it would be wise of me to quit trying to outsmart what I know works. It's never a bad idea to continue to learn new things and to try to improve on a system that works. But it was obviously a bad idea for me to charge ahead with unproven methods. I got a little cocky and I made a lot of money. The market has a way of humbling me EVERY TIME I get over-confident.

Judging from my e-mails, I wasn't the only one to get humbled in the last couple of months. I hope that we all use this as an opportunity to get back to what we know works and get back to the basic ideas that make money in the market.

Today I made 1.01%. Back to the basics.