"The market is wrong! Stocks shouldn't be going down, because things really aren't that bad."
You hear comments like that quite often when the market is being hit like it has in the past week. The problem with that thinking is that it assumes that the market is rational. It also assumes that we have the correct perception of what is really happening.
Rather than argue with the market, successful traders deal with it by staying disciplined. The worst thing you can do is compound a mistake, and that is why the mantra of good traders is "discipline trumps conviction."
No matter how strongly you might believe that the market is acting in an irrational fashion, there is a point where it is more important to be disciplined and cut losses rather than continue to battle the uncooperative beast.
The reason why discipline is more important than conviction was famously summed up by the economist John Maynard Keynes, who wrote, "The market can stay irrational longer than you can stay solvent."
The important point here is that it doesn't much matter whether you agree with the way the market is acting. Our primary goal should always be to protect our capital so that we can remain in the game and reap profits down the road. If the market doesn't see things our way, we have to draw the line at some point and take our lumps.
The action today is by far the worst we have had in a while. Many stocks have lost their support, and bids have dried up. We aren't seeing any oversold bounces, and there is actually some acceleration of the selling as we make new intraday lows.
Work on those shopping lists and be ready to start nibbling on some favorites, but don't be in a rush and don't forget that money management is far more important than whether or not you think this action is justified.