Thursday, July 15, 2010

Staying true to your trading style

As the regular readers of the blog might have noticed, I didn't say anything about my own trading efforts today in the regular daily review.  Its not because I didn't trade today but because I am very disappointed with the way I traded today and though my actions today deserved a new post. The newer readers of the blog might be surprised by a whole post documenting and admitting to mistakes and losses but as those who have been readers of this blog from the beginning know, I have always been very forthright about my mistakes and losses. That's why you see posts like "Confessions of a recovering trader" and "Traded like a damn fool" in this blog :). If I am not forthright about my mistakes, how can I even expect to learn from them? So, here it goes....

I got into SFI at 4.48 today. It was 1/3 rd of my regular position size. The idea was that I would average up or down, as the case might be. So far, so good right? Yes, except for a couple of things. Because it was such a small position size and I went in with the mindset of averaging, I didn't have a definite stop in mind when I entered the position. The fact that it was a small position made me over-relaxed. Secondly, I am not really comfortable with the concept of averaging down. I know lot of successful traders do it but its just not my trading style. I feel averaging down is just throwing away good money after bad money but that is just my point of view. I average down sometimes but that's only in stocks that I have traded very often, stocks whose tape I have watched for hours and feel confident in predicting the action. This was a stock I hadn't even heard of until last night. Anyway, to make a long story short, I made it into a full position at 4.18, giving me an average cost of 4.28. I sold it for 4.25, thus taking a small loss. But this post is not about the actual loss. Losses I dont mind as they are a part and parcel of the game, what I do mind and what makes me disappointed is mistakes like these. I felt really uncomfortable in this trade. The moral of the story is that I should always have a definite stop loss and not get too complacent with small position trades. Also, I should stay faithful to my trading style and what works best for me as much as possible. Both these points seem like stating the obvious but one makes these stupid mistakes sometimes in the heat of the moment.

I was really angry with myself after completing this trade and decided this was it for me for the day. However, then opportunity presented itself in the form of GMXR and I felt I should not let one bad trade effect the rest of my trades. I got in at 6.99 and added more at 7.10. I did have a well defined stop as I entered it and I averaged the stock on its way up. Totally opposite to the morning play! And it felt right and I did not have to force myself. Shows the importance of staying true to your trading style. I also added some PMI in the last half an hour at 3.45.

Well, that's it. I hope I can learn from my mistakes today. Hopefully, this post would be of some use to readers out there too. Some mistakes in life one just has to make themselves but it is nice when you can learn from someone else's mistakes.

Take care and good luck!


xoomoon said...

Hi Trader,

I do that too. How do you set a stop loss for your stock? What's your style? BTW, thank you for your excellent stock market analysis. Really appreciate it as I continue to learn.

positiontrader said...

Hi xoomoon,

I set my stop loss based on the charts. In these days of HFT algorithms, I make sure to keep my stops a safe distance from the obvious spots such as 50 day MA etc., so that they are not run over just for the heck of it. I primarily trade based on reading the tape, and don't hesitate in taking a loss even before my stop point if I think the market is going against me. I have basically evolved into a momentum trader, as I think that works best for my personality. I feel its important for each trader to find a trading style that best suits his or her own personality, so that one is not forcing a trade and is comfortable with his or her own decision.

Thanks for reading!

Stewie said...

Another good post by you PT.

positiontrader said...

Thanks Stewie! I would rather write the regular posts though :)

@judithgiana said...

Just read your post. I've done trades like the one you describe. I always end up scolding myself for not staying with my plan/trading style. It never seems to work out in the end. Thanks for your honesty.

Judy G