When contemplating a good entry point to open a new position in a stock, I often find myself waiting for a pullback, such as was the case with AA (Alcoa) recently.
I have to chuckle now because, as I look back I can see what has happened many times in the past: the pullback I thought “I deserved”, hasn’t shown itself yet… Maybe I should realize that I have a bad habit of over-thinking things. After all, one of the definitions of contemplating is in fact to look at thoughtfully for a long time.
Somebody should have added a time limit to the definition, so people like me would know when it’s been long enough contemplating, and to go ahead and take action.
Here’s what happened to me recently, with a little background info. as well:
- I am always on the lookout for trends that I hear about, that could possibly effect industries and individual stocks for the long term.
- I saw a segment on my local news television station on Tuesday January 14, 2014 about Ford announcing they will be starting to produce their F150 pickup trucks with an aluminum alloy body beginning with the 2015 model year. This was initially announced by Ford on Monday January 13, 2104.
- I went to my current “day job” Tuesday morning (which limits the amount of time that I am trading these days), thinking about how this could be a potentially large new market for aluminum producers, specifically, Alcoa.
- I began to think about Ford being only the first, with other manufacturers following their lead… and the potential new market just kept growing.
- I checked AA that evening when I got home and AA closed up approx. +2.5%… That’s when I decided to wait for a “small pullback”, since the stock did not to appear to be moving up as quickly as I thought it should have been, based on this new potential market.
- The next day AA closed up approx. +3%, followed by +4%, +3%,+7% and just kept going up daily while I was waiting for the pullback which never occurred…
After AA rising just about 20% in 5 trading days after I told myself “mentally” to wait for a “small pullback”, AA has finally pulled back a bit, only that small pullback is now after rising 20%ish… which in my case, would not actually be a pullback at all.
While in some cases it works out fine to wait for a pullback before entering into a new position, if the reason for entering the new position is there, waiting before pulling the trigger and entering a new position will not affect that reasoning (unless that reason is based on something technical on the chart itself).
Sometimes being too cautious and staying on the sidelines can be detrimental to your trading and investing success.