so this is what being in cash feels like

I don't hardly believe it, but I'm all cash right now. I've never been all cash. Maybe this means I'm learning, finally. After all, I pissed money away all last summer during the correction trying to stay in and find winners. Or maybe it means I panicked and sold out too soon on Tuesday. Of course, that's easy to say in retrospect. I was hoping that getting out of the market would give me some new perspective, and it has. I've come to realize the value of the saying that you need to plan for every occurrence. Before you get in a trade, you need to have the whole thing figured out. Entry, exit, and what ifs. Yesterday was a big "what if" that I hadn't considered fully. If you come upon something you don't know how to deal with, chances are good you'll do the wrong thing. I'm still not sure if my reaction was wrong, yet, but the fact that I didn't know what to do was wrong.

Tuesday's crash caught me totally off guard, like most, I suppose. I think everyone expected that a downturn or correction was coming, but I thought we'd get more warning. My plan was: as the distribution days start to show up, phase out. But before Tuesday the IBD distribution count was 1 day, the market's making new highs, the NASDAQ's leading, etc. Turns out the bears with their oversold indicators were right. I still don't like the idea that we were "due" for a correction. That just sounds too much like the gambler's fallacy to me, but I suppose it's not a fair comparison. You're not measuring a roll of the dice, you're talking about market psychology--the old saying "there's nothing new in the market." Anyway, apparently there have been a few other big sell-offs like this with no warning before. Maybe the absence of volatility has led up to this surprise.

Anyway, after it hit, I don't think there was anything I could have done. Any stop orders would have been gapped before they filled at market. The mistake was just being overextended at that point. At least I did get out of a few of my China stocks like AOB on Friday and CHINA on Monday. Of course, then I picked up MR, which got spanked at open. That was the first thing I did after I got online. I saw that pretty much everything had bounced up from the low at open, except MR, my remaining Chinese stock, so I dumped it and then sat back to assess the situation.

Now, of course, my rule #1 is Don't Buy or Sell during the day. I even thought about this, but couldn't convince myself to stick to that. I also got email alerts from a newsletter I sub to and they'd gone to cash first thing. Not knowing where this thing could go, but clearly the trend was broken, I decided to bail out of anything that was down more than 6% from its highest close price since the rally started. This was all of them, of course. But I tried to sell out with limit orders for that 6% number. Some of them filled on spikes up, and some I had to tone back later on. That left me with ICE, SYX, and AB--my 3 biggest winners in mid-afternoon. Then the slide happened and I got out of them too.

Over the next day or two, my longer-term stocks in my IRA stopped out too. First GS, then SHLD and finally TM today.

So, I'm not going to beat myself up over it, but if I had more experience with panic sells and big downdays, maybe I would have handled this differently. Blogs I've been reading seem to indicate that vets know that a panic sell is usually followed by a rebound where you can get out at a better price. But then again, Wednesday could have just as easily continued on down, and then I'd be screwed. Also, Tuesday was enough of a shock that IBD just went straight from Confirmed Rally to Market in Correction in one day. That to me indicates that the trend was broken as soon as the market opened that far down and the correct thing to do was get out.

I even thought about the saying "the problem is that people fear when they should hope, and hope when they should fear." I think this was a case where instead of hoping (that the market recovers), you should fear (that you will lose your capital).

So, now the challenge is to be disciplined enough to stay out until we get a confirmation. There will be shake-outs and false rallies and bounces, but until I get a follow-through day, I'm not buying stocks.