The reason for traders going long doesn't matter, whether it's institutional investors taking advantage of buying BIDU "low" (many probably expect BIDU to easily hit the 500's now), or whether it's the shorts who didn't take their profits when BIDU was hugely oversold earlier last week. Now put yourself in the position of the more professional short-sellers who wake up to BIDU's gap Wednesday morning and follow the disaster-management plan of waiting a few minutes after the open before reacting. Price ticks down in pre-market, then falls at the opening bell. The smart shorts will watch carefully for support to be established, realize that this is game-changing news and start to cover once that support is established. Hey, sh*t happens, cut your losses (or at least cover part of the position) and move on. Now the remaining short sellers who are still holding (hoping this is just a reactionary fluke and price will retrace at least 50% of the gap to the 420 area) will likely place their stops above the opening price. You are absolutely right, PA, about the short squeeze that will hit if price breaks through that level. That's where the stops get triggered, the panic sets in, and the trend followers become filled with glee as they pile into the breakout.
I understand now. It's a great way to analyze the situation by putting ourselves into other traders' shoes. It make sense! Thanks! PA
On that note, something I practiced in sim with great success that I'm transferring to my live trades (and this should benefit Neke and other frequent counter-trend traders) is at the point you are ready to put on a counter-trend trade, choose where you would place your stop, then place your order there instead of jumping right in. It's amazing how often price goes right to that stop zone, sometimes a few ticks beyond then fails and reverses. I swear the professionals are all over this stuff and by getting into the shoes of "trapped traders" you can gain an edge.
Wow, a lot of trading advice ITT from guys that have never put together $410k in the first place.. neke is a talented gambler, using his experience to make huge bets for huge returns. He's not making long term investments after extensive due diligence. What if neke's bet turned into an immediate win of equal proportion? We would all be saying Way to go! and wishing we were him. No one would be worrying about his stop losses if he nailed a 25% gain in four days. Go get 'em neke!
Then this must certainly hold true for the entire universe of retail traders. (can't find the sarcasm button, but you get the point) Regardless, putting your money in a "real" business (whatever that means) puts you in the same success/failure rate as retail trading...you're 80-90% likely to fail in the long run.
Neke netted $130K one week in Oct 2008, but that doesn't mean we don't worry when he violates his own rules...again. (Sorry, I'm ET's resident Mom, so I always worry.) What if he does this again next week? And the week after? And the week after that? Uh oh, now we have a real problem. Fortunately, Neke always learns the hard lessons in the first half of the year, then rebounds nicely in the second half. (Neke, why the heck do you even trade the first half of the year????)
I'm almost out of words, although I want to be encouraging losing 25% of your capital in a single week is something I can only fathom in world disaster events, and this is clearly not the case. Not sure what to say Neke, best of luck getting yourself back up but it seems your risk variables need some serious tweaking. A most sincere prayer to you. No Heat
What I have learned the hard way is no matter how smart, sophisticated or experienced a trader is, all successful traders that I follow have one common theme: When they realize they have made a mistake, they exit, fast, no excuses, no rationalizing, no debate, no wringing hands, exit, done. That is the sign of a professional in my opinion. Without a trading plan, the market will sit silently and let you crank out numerous small gains and wait, sit and wait patiently for that one day, that one trade that takes it all back and then some. The only thing that stands in the way of your exit is your pride and ego and at the end of the day you have left neither your pride, your ego, or your money... <object width="425" height="344"><param name="movie" value="http://www.youtube.com/v/xGfXyVtiB1E&hl=en_US&fs=1&"></param><param name="allowFullScreen" value="true"></param><param name="allowscriptaccess" value="always"></param><embed src="http://www.youtube.com/v/xGfXyVtiB1E&hl=en_US&fs=1&" type="application/x-shockwave-flash" allowscriptaccess="always" allowfullscreen="true" width="425" height="344"></embed></object> "You got to be able to get out while the getting out is good...You can't ignore an error. Once you realize that you have made an error, the best thing is to get out of that error and start again, fresh, and that is what a good trader does." Leo Melamed As far as averaging down on a losing trade, in the 1987 PBS documentary "The Trader", Paul Tudor Jones has a note on his wall: "Losers Average Losers" http://trading.jr-print.net/media/video/paul-tudor-jones-thumb.jpg