Friday, January 22, 2010

Confessions of a desperate trader

Let'see....I am not quite sure how to start this. How about the beginning?

I woke up late this morning feeling pretty good. I had decided last night I would take a loss on my now rather huge SWC position. I guess for those of you who are uninformed, I should go back a little further. I hope the regular readers wouldn't mind this small digression. I had entered SWC day before yesterday at 13.44. It had ended the day at around 3% profit for me. The next morning i.e. yesterday, I wasnt able to watch the markets in the morning hours. I have a stop loss for all my positions (except NEP) but its a mental stop loss. So, even though I was going to be away, I decided against entering the stop loss. What difference could a couple of hours make in a position in which I was already decently up, right? Anyway, to cut a long story short, the complete details of which can be found here, I ended the day almost doubling my position at 12.70 (I hadn't averaged down in over a year before this) and the stock ending at support on 12.51.

Back to this morning.....So, I woke up thinking that if the stock broke 12.50, I would sell it without hesitation, learn from the mistakes and get on with my life. Opened my account to have a look at the pre-market around 8:30 and it was down to almost 12!! Now, this was a different ball game altogether! I was ready to take a loss at 12.50 but 12??!! I decided to give the stock a little more time. Surely, the gap could be closed after a 10% down day yesterday.

Well, within around the first 5 minutes, the stock broke 12 and went straight to 11.60. Let me tell you dear readers, if I say that I didn't feel good at that moment, that would be the understatement of the year. And all because I was stupid and careless enough not to enter the stop in before I left yesterday! Remember, thanks to me averaging down at 12.70, the first time I had averaged down in over a year and something that I would never ever recommend, I had a large position in the stock. Much larger than the positions I usually take. It finally went below 11.50.

I was long also DXCM at that time. I decided to enter a stop loss in that at 9.48 while it was trading at 9.55. But by mistake, and I dont make mistakes like this - ever- I entered a stop limit instead of a stop loss making me exit my position at 9.55. Small difference, I know, but I hope this gives you readers an idea of the kind of day I was having and the mental state I was in. From the proceeds of this stock, I took a small position in SRS as a hedge against my long positions. And as soon as I took it, the markets turned from down 80 points to down single digits. Yes, this was the kind of day I was having. I wondered what I had done to incur the wrath of the stock Gods. Certainly, the stock Gods were displeased.

I hope that from the above, you all have an idea of the mental state I was in. It is necessary that you do because only an understanding and appreciation of that could possibly make you understand what I did next. The only consolation that I had at this time, if any, was that at least I wasn't on margin. I had seen my almost 10% gains for the month disappear in less than a week and was now negative for the month.

In a moment of madness - it has to be madness, there can be no other explanation - I decided to double my existing position at 11.65. And yes, I was in margin now - 50% in fact. I guess there was some thinking behind my decision. I had seen volume to the upside now. PAL, also a palladium producer which moves along with SWC, had started a move up and was doing pretty well. By this time, losses didn't mean much to me. So, I decided to place this one large bet with a stop loss at 11.48, the low of the day. If it didn't work, I would lose just a little more and what did a little more matter by now anyway. As much as I try, you being the smart readers that you are, I cant defend my actions either to you and most importantly, to myself. Like I said, I was doing stuff and making mistakes I hadn't made in over a year. Certainly I was desperate, and hence the title - Confessions of a desperate trader.

To cut this already pretty long story short, the stock Gods finally took pity on me. I sold my now very large position at 12.11 and 12.15 for a very small overall loss. Relieved and carefree now, I decided to sell my SRS position too for a small loss. You might think that that it turned out to be a smart move in the end but it was not. It is the most stupid thing I could have possibly done at that time. That's why this post gets the label "mistake".

Admitting to all these mistakes in a public forum like this hasn't been easy. But like I wrote yesterday, I could quite possibly lie to you readers but how can I lie to myself.

I ended the day still positive for the month, but the lessons learnt this week should and would not be wasted or forgotten. I will be back later this weekend with a post trying to figure out the mistakes made in my worst trading week for over a year and how to correct them.

Hope all you guys fared better than me. If you had a bad week too, lets keep learning and try and become the best traders we can be. Good Luck and thanks for reading!

BTW, I entered SBIB later in the day. As I got up to leave the room for a few minutes, I had a smile on my face. I had a stop loss entered.


Milk Trader said...

Anyone who doesn't have a similar trading tale of woe either hasn't been trading long enough or is lying. Prepare yourself for the obligatory advice from others: "Follow Your Rules" and other annoying conveyances.

positiontrader said...

Thanks for the encouraging words M.T.! And I welcome any comments comments like the ones you mention as I clearly deserve them. I thought I was past all these stupid mistakes but am clearly not! Time to start all over again....

Keith said...

This week has been tough on a lot of traders even without mistakes. I had no time to trade this week which I see as a good and bad thing. Good that I didn't have to deal with it. Bad that I didn't experience it and learn like you did.

It looks like you have talked and analyzed everything out and ready to go next week. I can see where a blog is beneficial - I might start one myself.

positiontrader said...

Nice to hear from you again Keith! And trust me, I would rather be in your shoes than mine! lol

I am actually looking forward to next week and a fresh start. It will take a while to get the confidence back but it would be nice If I could just start doing the basics right once again.

John said...

I have made the same mistake before regarding the stop limit/stop loss. Its gets me so angry. The other day when I bought a stock (I always buy limit orders) I accidently made my limit order the order I wanted to sell the stock at, so I basically bought it at the market price. Thank goodness it didnt come back to bite me. It happens to the best of us! Good luck!

positiontrader said...

Yeah John, stuff happens! What's important is how we react when it happens.

Thanks and Good luck to you too!

@judithgiana said...

Am just now reading your posts (shame on me). This trade story is similar to one I had. I had a position in SNTS and for a week, I watched it go nowhere. I looked at it once again at end of day and was a heartbeat away from selling at the close. I never pulled the trigger. After the market the stock fell precipitously, I lost 40% of my investment in a half an hour. Moral: always listen to your inner trader. He/she is not often wrong and almost always right.

judy G