I would like to know how other traders handle intraday news that affects a trade that you are in negatively. I don't generally put hard stops on my positions because I feel that is giving too much information to MM and Specialist but I keep mental stops. I had a trade yesterday (short MXT) that was clearly going in my favor when all of a sudden all the offers instantly disappeared. I watched horrified as the thousand dollar profit I had was turning into a thousand dollar loss. A general downgrade was put on credit card companies by Deutch Bank and the stocks opened up big percentages below their previous closes. I figured that the Specialists were probably already short and that they were now going to use this opportunity to cover at prices substantially lower. A very low risk trade in my opinion. A few minutes after noon MXT turned around while all the other companies in that business and the market in general were still falling. Finally Briefing.com comes out with the news that MXT came out with a press release stating that they confirm their earnings expectation and that the problems their competitors have doesn't affect them. By now the damage was done. What to do? Well, I figured that the Specialist was in the same boat as I was in and was still holding a short position and was as surprised as me. There was a run on the stock and he had lost control of the price. I thought that he would have to sell even more stock short in order to gain control again So I held on and sure enough massive blocks appeared on the offer side and slowly the bids started dropping. First five cents then fifteen cents then a quarter at a time until he retraced more than 50 percent of the move up. At that point I covered my short with a decent profit and thanked God for not destroying what was a good trading day for me. I would like to know if how I handled this situation was reasonable and realistic, if my thoughts on the specialist were even remotely correct and how others who have been similarly affected handled it. Thanks to all and.... Good trading Steve
I think you handled the situation well - it's very difficult to keep a clear head when "stuff" happens. * it does sound like you were trying to make up reasons why the trade would revert in your favor. Hoping is often dangerous (and expensive) * whenever something happens that I don't understand, I just get out. I would consider a sharp sudden reversal such an event. * realize that "stuff" happens frequently. Be happy that you followed your plan. There is much adversity in trading every day. The most important thing is to stick to your plan. Don't focus on any individual trade, but rather on the overall performance of your approach.
I think you did the right thing although I wouldn't have thought about the specialist myself, but rather would have waited for a pullback since that first spike was probably an over-reaction, just as on the downside there is often a reaction low. Waiting a short time for buying/selling to balance out was a smart move since even those looking to go long might not have bought until after some sort of pullback. Good job keeping your cool in a tough situation!