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Tuesday, February 24, 2009

Trade Management: Let's See if the Optimism Holds

Gold sank $31.00 on the April contract. The DOW Jones Industrial average rose about 236 points.

Much of the business of 'investing and trading' is about human psychology.

It's about avoiding getting sucked into the 'mob mentality' that pervades much of the market. Observing and noticing various 'phases' of that 'psychology of the mob', and what phases that the said 'herd' is going through, and will go through; and then taking advantage of those observations.

Do you remember the emotions in 'the mob' only a few days ago? I wouldn't even call it fear. Fear has an immediacy to it. It has a tangible panic at it's core that drives its victim to immediate action. A few days ago? The mob mentality of the market was sheer dejection. Hopelessness. Those are the signs that fear was exhausting itself. Learn to observe financial anchors on the television. Not for any insight. But because most of them are wrong. Watch their emotions. Watch the market. Watch what happens in the market shortly thereafter.

In addition, I think today's market movements, if nothing else, underscores the importance of transparency. I watched some of Mr. Bernake's comments to members of Congress. It was interesting in that he specifically mentioned ideas he had for avoiding complete dilution on further financial stocks, while at the same time, returning the banks to private ownership and control. What the exact plan of attack was. His ideas for reducing the Feds balance sheet.

That transparency and communication of action was what the market was waiting for.

But it's not over. There will be a tomorrow. For today? Let's see if the immediate optimism holds.

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