You show me someone who has never done anything wrong and I will show you someone who has never done anything.  Let’s face it.  No one wants to make a mistake.  We think we are good; we are smart, and maybe better than the average bear, but face reality.  We are all human and it is not a matter of if, but when, we will make a mistake.  We might be afraid of ridicule and others thinking we are incompetent, but you must rise above that.  Admit when you were wrong, correct it and most importantly, learn from it.  Not only learn from it, but profit from it as well.

This past week I was served a large piece of humble pie.  I was very proud of my year end results and how I had tweaked my program using changes in direction of the histogram. Unfortunately, success got the better of me.  I got cocky.  I was using the histogram as the primary decision maker neglecting the other conditions that need to be met when making a stock pick.

To recap, the histogram is part of the MACD chart which in my view is the best technical analysis tool for swing traders.  The MACD is an exponential moving average with a faster moving black line and a slower moving red line.  The histogram is the difference between those two lines at that day.   The histogram is a series of bars pivoting above and below the zero line.  When the red and black lines intersect, there is no difference, and the histogram is at zero.  When the black line is at its maximum above the red line, the histogram will have peaked and when the black line is at its maximum below the red line will have troughed.  When the histogram changes direction, quite often that is when the stock price changes too. 

The correlation is uncanny.  Look at any stock chart and see where the stock price goes as the histogram changes direction.  The unfortunate thing is that it can give a false signal periodically and change direction the next day.  This is why you should use this in concert with other indicators and this was my mistake.

If I had used all my indicators, I would have significantly reduced the number of picks that turned out to be losers.  I would not have eliminated the losers because I am not perfect, and losses will happen even when I stick to the entire plan.  The key thing to remember is that the plan is solid.  I know this because the 2024 results proved this.

The key thing is not to get caught up in the exuberance or the hype.  Stick to your values; stick to your goal; stay focused and disciplined.  Every once in a while, it’s good to the proverbial kick in the teeth.  When that happens, reevaluate your actions.  Have you veered of course and if so, correct it.  If you have not strayed, have confidence in your plan knowing in the long run you will come out ahead.  Learn from your mistakes and profit from them too.

Cheers,

Al