One of my cardinal rules of trading is to never short stocks hitting new highs. Never never never never never never never! Seven times never! Let it be one of yours. +-*/ Math_Wiz
Thanks NoDoji, but you know with that, you could be whipsawed to death -- and think of paying the spread on those option trades and my heart melts! But yes, an absolute maximum pain threshhold is being set, and I am leaving the computer to take the action necessary - close the damn position at market.
I sure do read everything. I agree with some, others not so much, but I understand the spirit in which everything is written. Thanks for your input. After a snag like this, it is time to go to the drawing board and do a thing or two differently. This time, it is activating my max stop rule for a trade. Sometimes it could get you out at the worst time (to see the trade subsequently go in your favor), but on the whole I think it will make me think hard before deciding to average in, and if that helps resolve that, I would be delighted. Those subsequent positions in BIDU were totally uncalled for.
I agree with that, especially if you are just starting and there is no buffer. Max stop rule is being set at 6% now.
I think you are right. All the hedgies that bled in 2008 have come back with vengeance seeking to eliminate any form of predictability from the market. Better late than never playing defensive.
What if Neke had made, say, 20K from his bidu positions? Not a bad week right? But to bring up an earlier point, with the size of positions taken in those high flyers -- 10, 20, 30K -- means little when on the other side you can lose 100K. Which begs the next question: do you usually need to avg down that hard to produce a good profit in a position? Have you ever added 50, then 100, then another 200 contracts to a winning position. Beware leverage masking randomness/edge deterioration. Why not take down your max exposure in a position to say 5k or even 2k shares for a while? I know it's hard in a retail account where u can do what you please (the temptation is just too great, I've been there) -- have you ever thought about trading remotely with a prop account where risk parameters can be strictly enforced from the outside?
Neke, I feel your pain. $90k is a lot of money and the lesson from from this is so basic that I don't think it is worth $90k. You need to realize the money in your account is real money and you could have used the $90k to buy something real. Average down may work before and it may have help you bring your account to this level, but you may want to think about your account size relative to your strategy. Average down is not too big of a deal if you have a small accont and can afford to lose it all, but now your account have grown to a good sum, average down is a huge deal. You need to rethink your trading strategy with a focus on capital preservation. One good advice I have gotten is that trading is not a sprint race, but is a marathon. There will be a lot of people running faster than you and each time they passed, you will get tempted to out run them. So, don't get tempted. PA
I've found that a "max loss" price zone is often the point at which price pivots, because the professionals are familiar with the kind of setups that lure traders into picking the wrong direction and also with the price zones that these trapped traders believe are simply way too outrageous to ever be hit. So your max loss stop is hit and THEN price turns in your favor and this causes the rotten thinking that makes you average down later on and refuse to take a loss until the pain is overwhelming. This has happened to me so many times (resulting in my largest losses) that I've learned to place my stops very close, right at the price where the setup becomes invalidated. You can always get back in. If you took a $10K loss on BIDU with $5K of that being spread and commish, then tried again and took another $10K loss, then decided enough of this, BIDU is way too strong to be shorting today, you've conceded with a manageable loss. I've had days where I overtrade and get whipped around to the tune of my max daily loss. But this beats averaging losers because price will NEVER get to THAT point, only to find myself down 5 times my max loss.
Loss in one day: 102k+14k=116k. With that amount of money, you could buy a 3-bed-2-bath newly constructed house in a subdivision not far from where I live.
The money is real. To put it in perspective, you could have bought a nice car with that money. I am sure there are some other successful traders telling us to not think about money when trading, but that is a complete BS! (Yes, I am a newbie and I am calling it a BS) It's too general and it doesn't tell you when and to what extend we have to not think about the money. The bottom line is that we trade to have a good life. You are already got the good life. Don't throw it all away. Preserve your capital! PA