I know a trader that this happened to. He was supposed to be a pure daytrader. Then it was one long term position...then three...and so on. Now, 2 years later he is still paying margin calls on 10+ "daytrades" from 2 years ago. His retirement is pretty much wiped out. When do I get out of a losing position...? When I know I'm wrong ;-)
Sterling: You may look at VIAN last August 30, 31. It was primed for a reversal. Then after hours August 31st, Earnings Warning gapped in down from 14 to 8.88 I'm sure many, turned into investors, an look where it took them. Current support, 2.34 Usually on bad news, and especially when the Averages are topping it is best to get out fast. And go with the trend. If the price action falls to a strong support level then you can wait to see it holds, but as soon as it breaks that support, get out. With VIAN 9.38 was strond support, and with AAPL 14.06, and 12.5 for stronger support.
Great discussion here and some good advice given. I also have a story from which I learned an important lesson. On 11/08/00 I took on a sizeable trade in CMGI looking for a breakout and a 1/2 point or so gain. The trade immediately went against me and instead of stopping out like I should have, I allowed my emotions to take over and give it some "wiggle room". Instead of selling at the close my fatal mistake was to decide to take the position home. Overnight there was a ton of bad news in CMGI and related stocks and CMGI opened the next day at $18. I wound up taking a 5 point loss because I could not / would not stop out the previous day with only a 1/4 point loss. A stop is a stop is a stop. If you turn out wrong going in it's only right to get out. Like other posters have stated, capital preservation is paramount. It's the only way you will live to fight another day.
My hardest lesson-as a novice position trader with a day job, I tried to acquire a position in NEWP during a run up this past fall for several days with limit orders which never got touched, and finally placed a market order and went to work confident I would have a piece of the uptrend. If memory serves me well, My market order was executed @ 174, and Newp closed @ 150. When I got in I realized I was down 24, so of course I could not bear to sell at such a loss- So I kept the position open, with limit sells hoping a bounce would get me within the 8% I usually set a stop at. Never happened, and I sold much,much lower. It was a rude awakening, but a lesson well served. While my 8% stop is unthinkable for a daytrader,and most of the members on elitetrader ,it is where I draw the line on position trading, to keep from getting whipsawed. It was the last time I would hang on to a losing position. I learned several lessons then, The most important is to take the loss early on; I now cut my losses before a stop executes if the indicators show weakness. Don't even think twice about it. Newp today is below $30.00 . If I held, I might have broke even as a long-term investor in a decade or so; at least now I still have the option of having more cash to invest elsewhere's. Although the parameters of where to set stops may be different, the key is to set those stops and cut the losses.Good Luck!
Honda I'm wondering how much you learned your lesson from this? No one addressed the 2nd part of my post but maybe I wasn't too clear. I always use stops but never shoot for homeruns. What I'm curious about is what type of ratio are you shooting for. If you make .25 on a winning trade but lose .85 on your losses if you are right 50% of the time this will lose you money. One of the keys to trading is to have a positive expectancy. This can be done by having a high % of winning trades or even a low % of winning trades but the losses are very small while the winners are huge. When you took off your stop you went from having limited risk and unlimited reward (or maybe not by taking profits too soon) to having unlimited risk and limited reward. praetorian2 said"congrads" Which I won't say at all. You broke a serious rule in trading but were able to walk away unharmed, congrads aren't in order at all. You were very lucky. I don't recommend you do it again. If you are being stopped out too frequently try longer term use a point or 2 stops and reduce your size for awhile. http://www.iitm.com is the website of my father it might interest you somewhat. my messageboard is http://communities.msn.com/rtharpsland rtharp
I'm sure Honda lost enough sleep over this one to think twice next time. I can't imagine it was much fun having his capital tied up for 2 1/2 weeks.
rtharp I learned alot from this lesson. I learned to use stops no matter what. I will follow my own recommendation as I stated in my initial post, reducing my share size, using stops at support & resistance,& trail the stop so I can let my profits run. May you be succesful in all your endeavors.
Hope I didn't come across as too harsh but better me than the market. What you wrote in the last part is fine. As your skill improve you stops will automatically get tighter as the ability to recognize patterns improves. rtharp