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Why Price Doesn’t Matter Part 1

We always seem to remember our firsts… first kiss, first car, first day, etc.  I’ll never forget my first trade, although I should have. It was the summer of 2010 and the market was recovering so why not? We had several years of savings, a brand new trading account and I was ready to lay it on the line.

That morning I remember my wife saying something like, “Let’s trade something today” and I was thrilled. I checked the broker’s news feed (mistake #1) and saw that RealD ($RLD) was launching its IPO (mistake #2) in just a few minutes. I didn’t know the company (mistake #3) but I didn’t want to miss what seemed like a rare opportunity (#4) so we logged in to make the trade. “How much should we buy? How about 100?” (mistake #5). The order was placed right after the open and I felt the rush that later became all too familiar.

The funny thing is the trade went well. Not at first though. It sank after the IPO and so did my heart, so I forgot about for a while, unable to bring myself to sell the shares of what I was now convinced was a good solid company (#6). “It’ll come back,” (#7) was our daily mantra, and sure enough in a month or so we sold for a sizable profit.

So in the course of one trade I managed to commit the 7 deadly sins of trading and come out alive. You’re probably asking, what’s so bad if you made money? Well just like that first kiss, once is never enough. What I came to realize as other trades followed is that in trading you can be 100% wrong and still be right in the end… and vice versa.