Stopped Out of ALGN

At 9:43 this morning I got the email that I had been stopped out of my ALGN trade. Although I expected that there was a good chance of this happening at some point today, I was surprised at how fast it crashed down past my stop. I was also surprised to see that it rallied back all day to finish around even for the day.

I’m fine with the loss. What has been bothering me all day is whether or not I was wrong to take the trade in the first place. Thinking back to Monday night and Tuesday morning, everything was shaping up perfectly. The new uptrend was just starting. The stock had broken out on huge volume. It had stellar fundamentals. The general market was set to cruise higher. Everything looked to be in order. Then the Fed didn’t offer to print more money and the market didn’t like that.

I knew that the Fed Meeting was happening Tuesday and Wednesday before I bought ALGN. I also knew that what they said could affect the stock price dramatically either way. My question is should I have passed on the buy because of the risk of the Fed hurting the market or should I have bought anyways knowing it could go either way.

When I break it down that way, the Fed Meeting sounds a lot like an earnings release. There is no way I would buy a stock the day before it announced earnings because there is too much possible volatility. Since the number one rule is to not lose money, I should have kept mine on the sidelines until after the Fed had their press conference. I would have missed out on dramatic upside potential if they did announce QE3, but I would have saved myself a quick loss if they didn’t and it is always more important to play solid defense. Especially in the market environment we have been in for the past few months.

This is the second time I have lacked patience in assessing a new uptrend. I need to be less eager to jump right in after a Follow Through Day. I need to be comfortable waiting for THE RIGHT STOCK to break out, not just ANY STOCK that breaks out. Although ALGN had been on my watch list for months, I should have foreseen the danger of the Fed Meeting.