Anatomy of a failed trade

Discussion in 'Trading' started by omegapoint, Feb 15, 2008.

  1. I buy 100 DRYS @84.16 trying to catch the falling knife. Look at the recent history, its pulled back about the same from its ascension how many times, thought it was reasonable. I sell @ 82 since ain't comin back and it didn't now around 1:30 its @ 80.40 and tanking. Opinions on where I screwed up.
    Before the days over it'll beat my basis ...with my luck.
  2. I think you answered it yourself in your very first sentence. You tried to catch a falling knife. Sometimes you get lucky, sometimes you cut yourself badly. In the future, try to look at pivot points. Quotetracker charts have this. A lot of other ones don't. Good luck.
  3. I don't understand why you think you screwed up.

    1) You had (reasonable?) expectation that recent historic action would repeat.
    2) You understood the "falling knife" aspect of the trade.
    3) You cut your losses.

    The only way you screwed up, imo, is
    1) You didn't cut your loss soon enough.
    2) The trade was taken based on an untested (by you) setup and/or based on "tools" located outside your "toolbox"

    Osorico [futures trader, not stocks.]
    FWIW; I have not looked at any chart or quote of the symbol mentioned.
  4. I wouldn't try to catch a falling knive either, unless it's a short term scalp. Why not wait when until the stock has finished dropping?
  5. You've probably seen more charts than I have, I'm a relative novice, they can keep falling after a correction as much as
    catching it w/o the bounce. It just seems to me to be a practise in futility to try and figure out where its going to go. I realize thats an oversimplification for this game but I looking for something that makes sense.
  6. lindq


    First, DRYS is a very volatile stock, and can hit you for a few points in minutes, as you discovered. So you really have to know your stuff to play with it.

    Second, you bought into a gentle pullback from the recent high, which was today's open And you did it on a day with a very weak overall market. Ouch. Lucky you didn't get slaughtered.

    I regularly buy pullbacks, but I look for a very sharp drop on strong volume on 5 min charts. Then I wait for a small confirmation off the bottom and jump on. I want to know that sellers have really caved, and the bottom is in. (As much as it is possible to know.) Then I use extremely tight stops in case I was wrong.

    DRYS did not exhibit any of these characteristics. It wasn't a terrible setup, but not a high probability one, given the high this morning, and the weak overall market.

    But don't feel bad. This was generally a very poor day for buying into any weakness. There were a few good trades near the open on bounces, but that's about it.
  7. Thats the kind of advice I'd pay for. Thanks. The thing about stops though, I've read that entering your stop sets you up to
    have them hit just to get you out and that mental stops, if you stick with them are advisable. what do you think?

  8. IF you are a day trader and scalper yes lost money, because you narrowed your time frames and today there are no buyers to lift your stock.

    IF you are patient, sell a March 85 call and for 5.50 and stay with the trade 30 days, you will have a 0.86+ 5.50= 6.36 profits most likely. If not sell you stock, and ride your naked call if stock keeps dropping further.

    Hope this helps.
  9. Trading an estate acct so I can't go on margin. but thanks.
  10. lindq


    Mental stops, unless you are highly experienced, are very difficult to employ. It's too easy to play games with yourself. And with a fast-moving stock, by the time you reason with yourself and execute the order, you're often in the dumps.

    If you set a stop order with your broker, and not a stop limit, the order typically is not seen. When hit it will turn into a market sell order, which for me is superior anyway to a limit, as the limit can get passed by in a sharp correction.

    If you are interested in buying pullbacks, I recommend reading "Techniques of Tape Reading". The review is on this site.
    Vadym really nails what you need to look for in buying into capitulation.

    You need to be as certain as possible that sellers have exhausted themselves, and that the coast is clear to enter. Patience is very important, waiting for the right setup.

    Once in the trade, set a tight stop, just enough breathing room for a natural amount of movement, but not too much in case you misjudged entry. When the stock starts to move, bring your stop up to even as soon as possible, then let the stock rip. Also very, very important to keep an eye on the overall market to get it behind you. Ideal situation is an overall market pullback, setting up the capitulation entry. Then jump on it as the market recovers, even slightly.

    Take a decent profit but don't get greedy, or it will reverse on you.

    Good luck.
    #10     Feb 15, 2008