Friday, May 7, 2010

Putting Yesterday's Mid-day Plunge into Perspective

Yesterday’s sharp intraday plunge was apparently due to a trading error exacerbated by the high speed computerized trading systems used by the likes of Citigroup. The stock market was already in a short-term downtrend. I don’t consider that mid-day plunge to have much long-term significance. As to the decline that started almost two weeks ago, I think it is still too early to really know how significant it will be. All major market tops start out as a short-term downtrend, but not all short-term downtrends turn into major market tops. That is why we use stops to help manage volatility and risk.

Investing involves risk. It is generally counter-productive to attempt to avoid all risk. It is never a mistake to take a systematic approach aimed at managing risk.

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