I've been trading for approx. 2 years. I've traded EDAT & with a regular broker. I've read all the popular books about daytrading & have tried most of the recommended strategies. I'm usually a real conservative trader, not looking for a home run. I've been profitable both years, but not enough to make it a full time job. I'm writing this, so new traders can learn from my mistakes & avoid the problems I've run into. During my learning curve I found myself getting stopped out alot, because of the whipsaw action of the markets. I noticed that approx. 90-95% of the time the stock that I was stopped out of, went higher, usually for nice size gains. So in my infinite wisdom I said to myself that if I find a "good/ well known" stock that has been crushed, just because of this bear market, I'm going to buy "when I think it has bottomed" & not use the stop loss strategy. This worked great, win after win. I would watch a stock that I bought, move down pass my stop out point, then later come back up & go on to nice gains. I was hooked, to hell with the stops. Well it worked great until last week. Yeah I bought in what looked like a great stock that had been crushed, only to see it erode day by day. I'm down big now & moved to the category of long term investor vs daytrader. This is a tough business especially when you trade 500-1000 shares a pop. My recommendation (if you are a new trader) in a market enviroment such as this, would be to buy or short only 100-200 shares of each stock, use a stop loss on yesterdays high or low, & trail the stop. Oh & don't forget that the market is trending DOWN. Good luck & may the trading gods be with you!
This is a very valuable lesson that reenforces the maxim that you MUST adhere to stops to have any chance at all of succeeding long term in this profession. It's even more dangerous to have a few successes like Honda did by ignoring your stops and being lulled into a false sense of security that every trade will work out that way. Because eventually one will go against you and begin the drainage of your account that is the most common story of how traders fail in this business. The premise of finding an oversold or overbought stock and taking a position is fine, again as long as you maintain a stop management strategy. If the trade goes against you, all that you should think is that the trade didn't unfold as you thought it would--get out and figure out what went wrong later. I've seen the ranks of daytraders thin out considerably over the last year, and I'd hate to see it wane further.
Its my belief that most traders can read over and over again about stops and money management. But until they burn their hand, they wont believe the stove is hot.
Yes, until you are burnt there is no lesson. We learn from the mistakes not the success. Honda's story is a good example : Honda should have checked why 90% of the times the stop was hit and then reversed. In success he did not try to learn from it [you don't learn when you succeed]. That was a big warning which was sadly ignored. Then the 'trade and hold' started to fail [it always does by the way ! that's why all the paper and ink about money management and stops]. Capital preservation is your first job, not making profits. With a good system and capital preservation, eventually, you will make it and get the profits. Sadly Honda learned with the mistake, and too late... [well, by the way Honda, you seem to imply you converted your short term trade into a long term trade. I hope it is not true, because that's probably another mistake]. vpineomatrix.
your post sets off a few alarms. Yes always use a stop and then the next part is I'm not looking for home runs. Cut your losses short and let profits run. Did you cut your winners too quickly? Take a look rtharp
Honda, tnteo is right, be careful with this new long term investment. If I was in your shoes, I'd probably just bail out and look for new, better oppurtunities. One of the worst things you can do is change time frames in the middle of a trade. You didnt select the position as an investment, thus you probably shouldnt keep it as one. I know it will hurt to take the loss at first, but even if the stock reverses and goes in your favor, taking the loss is still the right thing to do.
Another thought regarding part of Honda's situation, which is a common problem I've heard from some traders, is regarding getting stopped out of positions that shook them out and then proceeded to run. In a whipsaw market like this, it's to be expected more often than in a more stable market condition. However, if this is consistently happening to you, I recommend either: a. Reevaluate your entry points or analysis of the stocks you're watching, or: b. Be more liberal with your initial stop loss level upon entry. Knowing that the market is currently unstable and adjusting your trade management strategy to allow a little more "wiggle room" is often necessary to adapt to different conditions. In more of a trending market, you can go back to tighter stop losses.
Don't worry about getting stopped out. That's not really an issue. You have to adhere to stops. Even on my best trading days, about 60% of my trades are losses. On some days, that number can get up to 95%. On average 3/4 of my trades are losses, but the point is to keep tight stops. You can always get back in. If you're expecting something to happen, and after an hour, the stock hasn't moved, I usually bail flat also. As long as your winning trades are larger than your loosers, you'll do fine. As for that current position you have, I think it's best to just bail. If you have pent up emotions in that one trade, it will never work. It's better to take your loss, and use your capital for a better trade. Best of luck.
I believe in following the #1 rule capital preservation to keep your losses small(money management) I think we all(rookies) hear, and read, this over and over. Yet in reality we subconsciously place the number one rule second. When you consciously ask yourself what the number one rule is, you know. You move on confused about why your not doing well. And when a trade turns into a loss, you surmise that it is not a small loss, so you say to yourself that you can fix your pain of regret by turning your trading strategy into an investment strategy. And in this market that will gaurantee a large loss that may take years to break even. Note: The book, "The Art of War", pinpoints anger, and greed, as the fundamental causes of defeat. According to Sun Tzu, it is the unemotional, reserved, calm, detached warrior who wins, not the hothead seeking vengeance and not the ambitious seeker of fortune. Try this perspective: Understand that it is the human element(greed) that tricks your conscious mind into decision making that breaks the rules. Knowing this you simply take greed/fear out of the picture. How? By keeping emotion out of the picture with a mindset of playing the stock market as a game to come out ahead, by winning more, and keeping your losses small. To do your best at this "game" by sticking to a known set of proven rules. You know the number one rule is capital preservation. Contrary to the main reason most traders are in the stock market, to acquire money, your whole thought process should be to master this number one rule(thought), Capital Preservation. So, when doing your homework and looking for setups to enter a trade, you constantly think about how small a loss you can take, not how much money you want to make, which will enable the human element to enfluence your decision making. Always calculate your Risk/Reward ratio focused on managing your risk(small loss). You can be successful by always managing your risk, never thinking about profit(greed) As soon as the price action moves in your direction above break-even, you then manage your risk by protecting profits with a trailing stop. Jeffrey
Honda What a coincidence!! I too made a mistake like that a couple of months ago. It was right after apple computer warned of a earnings shortfall. Apple went down below 18 and had a PE ratio of 8. The previous 6 months i had been making a killing and got careless. Didnt think there was any more downside. Didnt use a stop.. I bought 2500 shares right before close at 17 3/4. I went to the store and when i came back two hours later found out that Apple made another announcement. The stock fell below 14, lost 10 grand. Luckily, within a month the stock went to 19, and was happy to get my money back plus a grand for consolation. But, after i sold it went to 24. Wish u Luck!!!!! Sterling