Veteran traders know that when you’re expecting a certain stock movement, you’re bound to be disappointed. Hoping, guessing and relying on luck are not smart trading strategies.
If you’re a parent, you can relate. The title of this article is also the title of a book that has been used by expectant parents for decades. (If you’re not familiar with it, “What to Expect When You’re Expecting” and its follow-on guides help prep first-time parents for pregnancy through infancy.) Of course, yours truly read it. Thought it was helpful, it wasn’t always accurate. I found myself screaming (along with the baby) when things weren’t going well!
Babies and stocks are both unpredictable. When you’ re expecting a certain outcome, you are bound to be disappointed. Let’s say you’re bullish on a stock and nothing will convince you to think otherwise. All of a sudden, investors start selling and the price starts going down. No matter how often this happens, it’s really disappointing when stocks don’t do what we expect them to do.
What to expect when it comes to a stock movement
Having expectations for a stock movement are fine, but keep it in perspective. You can’t rely on expectations to make a living, and you can’t follow someone’s advice when they’re simply throwing out guesses without a set of supporting facts. If you always have expectations for a stock movement, then you will be highly disappointed most of the time. That’s not to say you can’t make a right call. However, the outcome is binary and your edge is usually no better than 50% (and sometimes less). How can you be right often without a great deal of luck?
Nobody trades stocks or options for income over the long-term by relying solely on luck. That’s not to say there is never luck involved. Sometimes an acquisition provides a surprising pop to a stock price.
Instead of relying on expectations like many pundits, analysts and fund managers, use facts and data to build a case for high probability outcomes. It takes more work, but it pays off. You don’t always need the most data, just the right data.
