It’s been a while since I posted a two-biter on this blog. Here’s one that happened on QCOM, an old friend (by which I mean a stock that’s been on my core list for years, not a favourite, because of course we don’t have favourites!):
This trade was never great from the start, with the price dithering and going sideways. Still, QCOM is a stock I’ve traded for many years and is generally quite predictable and reliable. Also, chip makers were heading south in general (we never look at a chart in isolation). So the entry was worth the risk, and indeed for a few minutes it all looked okay.
Then momentum faded. Rather than hope it might turn around, the strategy says exit (and the golden rule says never let a profitable trade turn into a losing one). So I was out with a paltry 14 cents / share. Still, $140 is better than a kick in the teeth, and provides a buffer for another entry should one come along.
And indeed one did come along, less than ten minutes later. With momentum picking up again, and the buffer of the previous trade, the risk on the new trade was very low. This time things dropped further and faster. The final exit came when momentum turned, giving a profit on the second bite of 74 cents, so $880 combined.
People often tell me they get stopped out of trades (which is a problem, because we shouldn’t use stops as exits), and that they then watch in horror as a few minutes later the price goes their way. I’m always puzzled by this. It’s as if people have some kind of rule that says when you’ve had a losing trade on a stock you can’t trade it again for the rest of the session. It’s like a loss (or break even, or smaller than expected win) somehow makes a stock temporarily toxic — to be avoided until the poison wears off. But that’s a folly. A good setup is a good setup regardless of what came before. I never rule out a stock because I might have taken a loss on it earlier. There are many other reasons I might miss a second bite at the cherry, but a disappointing first entry is never one of them.