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Trading Secrets

Always Be Learning: Exiting Too Soon On A Losing Position

It has been a successful month on many fronts as we started buying aggressively on January 9th. But I made some strategic errors that were really costly. There is always another train at the station, so learning to not make these mistakes again is the only value in a losing trade. I think it is good to share, as the market always keeps us humble. Learning from my mistakes is a constantly evolving process. This week was only one week in a lifetime, but it’s hard to adjust in real time.

My analysis of the big run starting in early January was very accurate, and once I had positions on, I just needed to wait.

Here are two examples of stopping myself out literally on the lows of the day.

Tesla


The first is Tesla. This is a Canadian ADR to trade Tesla in Canadian dollars. Chart shape is almost the same as the US chart.

Day 1: I bought Tesla at the black arrows. It closed below my entry, a small loss.

Day 2: I was in a loss position most of the day, as the other stocks I bought on Monday trades started to work.

Day 3: Tesla pushed higher and made a doji.

Day 4: Thursday opened higher, tested lower, but closed near the open.

Friday, Tesla announced price cuts, the stock dropped 4% on the open, and I was back in a loss position again, while other stocks were screaming higher. They announced they were cutting prices on their cars. My impatience wore thin. I sold Tesla within 2 cents of the low on the day and the stock rocketed higher.

A tough trade as the stock is now up 50% from my entry. I can only blame myself, but it was a difficult trade to watch for the last two weeks.

AMD – Advanced Micro Devices

The second trade I took after I sold Tesla was AMD.

Day 1: I bought it on the following Monday, as the stock made a new high, and the stock closed flat on my entry.

Day 2 was an outside bar, and price closed back in the middle of the range.

Day 3 the stock tested higher, closed lower on the lows of the day.

Day 4, the stock gapped down to start the day, I was down 6%, I sold at the red arrows at the low of the day.

Meanwhile other trades I had were racing higher. Tough looking in the rear view mirror, but trading yesterday’s chart is always more informative when you know the outcome.

Lessons learned:

TSLA: I had no reason to exit, other than I was tired of watching the stock sit in the red as other trades were racing higher. How much time is enough? Good question, one week? As the market went higher, I expected a big name stock to move. Patience.

AMD: The stock hit my stop loss, even as all my indicators were telling me to be long this market. NVDA was shooting higher, and I was losing money in AMD. I sold on the 4-day low. When you use stops, you are going to get kicked out of good trades. That’s just a fact. It stung that it was the second trade to go negative early in the rally. I would like to think it was discipline, but I need to be more forgiving as an uptrend is starting as the volatility is still high.

One positive: The strength indexes we use at ospreystrategic.org helpe me be long the market in a timely fashion.

Unfortunately, my management of the trades could have been better in both cases if I had another day of patience. I don’t use hard stops, as I have been whipsawed like the folks that had the wild swings on the NYSE recently.

There is always another train, and I am moving on. But the sting of missing the big swing, ouch.

Hopefully, this lesson can help a few others, but there are two more for my notebook. I have more lessons since those trades as well. The market will always keep us humble at some point.

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