Monthly Archives: February 2014
This is quite embarrassing, but oh well…here we go.
Wow, I didn’t realize how hard it would be to post about a losing trade. It’s not so much about losing money on the trade as it is the stupid REASON for losing money on the trade. I decided to go long 100 shares of Fannie Mae (FNMA) as a starter, because I saw Cameron Fous mention it on Twitter, and once I looked at the chart myself I could clearly see what he was talking about. It was a classic flat-top triangle with resistance at 3.50 (which had been broken yesterday), basically on the verge of breaking out to higher prices. You can see the pattern in the chart below (snapshot taken as of closing bell on 2/25/14):
I dragged my feet at the opening bell, watching to see if there would be any upward price explosion within the first 30 minutes, and not a whole lot was happening although it was steadily ratcheting higher. I went long 100 shares at 3.69 with a profit target of 4.00 (not a lot, I know, but it was what I believed I could get in one day), but then I made one of the absolute dumbest mistakes in the freakin’ world–I sat there and watched (and obsessed over) every tick. Sure enough, around 10:00 or so, I got “spooked” because it had gone down to 3.59. From that point it seemed like my mind was just being bombarded with thoughts like “What if this was a false breakout and it gets hammered?” “What if this is really a bear trap?” “What if I shouldn’t even be in this stock to begin with because its price was high relative to my trading capital?” On and on and on. I don’t know if it was the “first trade jitters” because of this new $500 experiment I’m trying, or whatever, but it just seems like I was no longer sure that I had made the right decision. I sold at 3.59 for a $10.00 loss, which actually turned out to be roughly a $30.00 loss due to commissions and so forth.
As it turned out, FNMA did end up hitting the 4.00 mark, and actually went a little over that. It closed at $4.04, plenty of room for me to get out at my 4.00 profit target. Had I stayed in and exited once $4.00 was reached, I would have netted roughly $11.00–no great shakes, but on a $500 account that’s a 2.2% return on your money, which is roughly SEVEN TIMES what the average local bank would give you on a $500 Certificate of Deposit–and in one day to boot. Plus, I’m a big fan of the old adage “You can’t lose money taking profits.” Unfortunately, today I chose to lose money for some dumb reason.
Lessons Learned from This Stupid Experience
1. Although I made the right call based on a very reliable chart pattern, I was basing my actual trading activity more on what I thought the market MIGHT do than what it was actually DOING. Contrary to the many ridiculous money-losing scenarios I had imagined, the stock was doing just fine. The price had not even gone down to my stop-loss dollar amount of $30, it only had lost $10 before I lost confidence in what I was doing. I’ve been around long enough to know that prices fluctuate, and a 10-cent drop–which was only a 2% fluctuation in the stock’s price–is no big deal at all.
2. I need to be better prepared before I jump into a stock. Even though the chart pattern was very reliable, I had not quite wrapped my mind around the type of position size I should have taken on, my real profit target, etc. I was basically “eyeballing it” instead of really being prepared. I am trying to get away from any impulse-led trading and get over into disciplined trading. I obviously blew it on this one, but I will calm my anus down and be more level-headed next time.
3. I cannot sit there and obsess over every freakin’ tick. I think that the above point reinforces this concept, because any time I haven’t really done my homework as to why I should even be in the stock in the first place, I’m liable to trade on “whims and fancies” instead of on my own solid knowledge. Your confidence can be shaken when you are trading based on other people’s reasons for being in a stock–you have to be in it for reasons that are solid in your OWN mind, and that make sense to you.
4. I really gotta widen my time horizon. Again, the trade was ultimately going in my favor, right up until when I got the heck out. I can say this because it had not yet hit my dollar-amount-based stop loss point yet ($30). Simply put, it was a trade with a high probability of success. Unfortunately, I got impatient because I guess I was expecting some much more explosive action before lunch time today. FNMA didn’t really heat up until the afternoon, near the closing bell. That freakin’ sucks. I could have placed my order, logged off, went about my business for the day, and then checked back at the end of the trading day, and I would have ultimately ended up in a profitable position. So I count unreasonable expectations as a definite culprit for a bad trading decision.
So anyway, this is my first documented trade in my $500 experiment. Here’s the basic breakdown:
* Went long 100 shares of FNMA at 3.69 on 2/25/14
* Closed my position only about 45 minutes later; sold 100 shares of FNMA at 3.59 for a total loss (including commissions) of roughly $30
* Total hit to my account today: -$29.98 (-6%)
* New account balance: $470.02
UPDATE: Later in the trading day, I ended up buying 140 shares (roughly $100 worth) of Vista Gold Corporation (VGZ) at 0.71. This is actually going to be a longer-term hold based on what I think the stock will be doing over the next few weeks. The chart on VGZ is outstanding…take a look at it here:
What I really like about it is that it has the rounded bottom with tight price action and quiet volume. There’s a “mini” bull pennant happening as we speak, and my gut tells me that this stock is close to a breakout that may lead to prices well over $1.00. As you can see from the chart, the 0.80 level is critical, and I have a feeling that a breach of that level will lead to a nice upward move. There’s a little resistance at 0.90, but I have a feeling that if this thing breaks to the upside, 0.90 won’t be a problem this time around. At the time of this writing, I am up $2.53 (2.55%) on that position, as VGZ closed at 0.728.
The mining shares in general are WAAAAYYYY undervalued in my humble opinion. The chart for VGZ has everything right about it. Volume for today was only 190,790 shares–there have been several days like this recently where you have tight trading ranges and low volume. All of this in my mind is a buildup for a run up. I’m willing to be wrong on this one, and I’m willing to wait as well. I will trade breakout stocks with the remaining $360 I have in the account. This low amount of dough will somewhat limit my trading opportunities, but hey, I’ve done worse in my life.
So that’s that…the first official trading day in my $500 experiment. I think the biggest lesson I learned was not to base trading decisions on my own expectations of what I think the market MIGHT do, but rather base them on the ACTUAL INFORMATION that the market is giving me. Over and out.