Never Trust The First Move

Never Trust the First Move

I learned a lesson today.

One of my instructors at Goat Academy gave me a simple rule: don’t buy stocks during the first three hours of the trading day (unless you are a seasoned day trader). The market is often too volatile, and there is simply too much noise to know whether that first move is real.

Today, I ignored that advice.

I was too excited about what looked like a potential breakout in Hewlett Packard Enterprise (HPE), so I was sitting at my laptop at 9:30 a.m. Eastern, ready for the opening bell. HPE opened at $61.35. I waited a few minutes, watched the stock start climbing, and convinced myself that the breakout was happening.

About ten minutes after the open, I bought at $62.60.

It was still going up, so who cared?

Well...HPE went up for about two more minutes.

Then it reversed.

The stock spent the rest of the day moving lower and eventually closed around $59.80. I had bought near the top of the day and finished the session with roughly a 4.5% loss.

Ironically, HPE ended the day about 1.75% from the previous day's close because of its strong opening. But that didn't matter. I had bought into the excitement instead of waiting for the market to show me whether the move was real.

My instructor's words came back to me:

"Never trust the first move."

There is too much volatility during those first few hours. A stock can look like it is shooting up, only to reverse completely once the early excitement settles down.

If I had followed the advice and waited until 12:30 p.m., I could have bought HPE at a much lower price—or decided that the trade wasn't worth taking at all.

Lesson learned. (See 5-minute chart for HPE below):

Next time I get excited about a potential breakout, I'm going to let the first three hours play out. Then I'll look at where the stock is and make a decision.

The breakout isn't going anywhere just because I didn't buy it at 9:40 a.m.

And if it is a real breakout, waiting a few hours may actually give me a better chance to recognize it.

Today, I paid 4.5% to learn that lesson.

Hopefully, I won't have to pay for it twice.