As regular readers and readers of my books know, I like to keep my losses small. Really small. A few cents maximum. If a trade doesn’t work out, I’m outta there sharpish. Which is why today’s losing trade was a bit painful, because it went further than a few cents against me. It was all my fault.
But I’m getting ahead of myself. First, here’s what happened with AMD:
This was a nice setup — a definite 4 in the trading log (I knocked off a point for that messy MA). When the entry came, it was a quick in and out. Lots of lovely momentum to ride, and when that ran out and things got a bit sideways, it was time to leave with a shade under $500 profit.
Then it all went pear-shaped. Here’s ROKU:
The setup was promising. Not a perfect 5 by any means, but there were no major concerns. Once the price cleared the old blue line, I was in.
And then it all went wrong.
The momentum wasn’t really there and I should have got out sooner. As it was, because ROKU is a stock I trade a lot, and as I’ve come to learn to give it a fair amount of wiggle room, I stayed in a bit too long. Which is why I ended up taking a seven cent loss, or $70.
It’s entirely my fault. Wiggle room is fine when the trade has already gone our way and we have some profit under our belt. In that case we are only risking unrealised profit, not our own account balance. It’s definitely not fine when we’ve just entered and it’s not gone where we thought it would.
In this instance I got lucky; the price made its mind up and shot upwards on the next bar. Taking a loss is never a reason not to try a second entry (or a third, fourth, etc). The second entry was perfectly valid, so I jumped in and this time momentum carried us up to a logical exit.
The profit on the second trade was $1,570, so when I knock off the $70 loss I came out $1,500 ahead on this stock.
The money was no cause for celebration though. As we know, profit is a misleading indicator of success. My execution — what really counts — was lamentable on the first entry, and I scored it suitably poorly in the log. When I go back and review this trade, it will serve as a healthy reminder of what not to do.