What Should Happen in a Stock Vs What is Happening

[Alan Perry]

You can always make a case that a stock is undervalued and will go up
or overvalued and will go down based on some fundamental piece of
data. But there is a difference between what should happen and what is
actually happening.
If a stock is making higher highs and higher lows it is better not to
rationalize why it can't go up forever.
Here are three reasons it is better to focus on trading the trend vs
rationalizing why a stock is too high or too low.
1. You Don't Make Money On What Should Have Been
You don't make any money from holding onto a falling stock, even if
all financial data tells you that the stock is due for a comeback.
While it is not a bad idea to do a little research it isn't the wisest
decision to go against the actual trend.
2. The Market Can Stay Irrational Longer Than You Can Stay Solvent
Trends can last a long time. You can either be the stubborn one
yelling and crying that the trend has to turn around, or you can be
the one riding the trend and profiting from it the entire way.
The famous saying 'the market can stay irrational longer than you can
stay solvent' by John Keynes has a ton of truth to it. While you may
be right in buying at a low price and holding onto until your
profitable, it isn't always easy to do, or the most profitable.
3. People Are Emotional
People move the market by buying and selling stocks, in general people
are very emotional, which means stock prices are very emotional as
well. They do not always make sense.
So in conclusion, using financial "common sense" isn't a bad thing.
But if the fundamentals ever argue with the technicals, I'm taking the
technical side.

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