Tuesday, March 27, 2007

CF Part I - The Downside

I spent the better part of the morning amusing myself by getting squeezed trying to short AB and getting smoked by buying CF. Clearly, the lesson I "learned" yesterday needed a little more time to sink in. As I was getting worked, I came upon a realization that I've probably had 1000 times before while trading but always forget. So this time, in order to remember it, I've written it down.

It's this... that you always feel your worst trade of the day is destined to be your best.

What I mean is that I kept getting short AB thinking that "once it turned" that I had the best opportunity to make some good money. Same with CF. I kept buying thinking that "once it turned" it would rip and there would be nice money to be made.

Hope and greed work together to kill the trader.

Here are the details of my trades in CF as the stock moved down from the open until around 10:20. The following account is pretty dry so I'd suggest following along by enlarging the graph by clicking on it. They're 5 minute bars.

At 9:50, just before the stock really dropped, I started buying. I bought 500 at 39.95. It became pretty clear that the stock wasn't through selling yet though, so I sold my shares quickly. Lesson learned! I sold 200 at 39.93, 100 at 39.85 and the last 200 at 39.65. A loss, but not bad considering that the stock still had over a point and a half to go before it hit bottom. Perhaps in the recent past I would have only sold half my position... anyway, I was pretty happy with my quick exit.

At 9:55, I tried again, and purchased 500 shares at 39.32. Again, I had to sell quickly, and sold 100 at 39.11 and 200 at 39.09. Not great fills, but take a look at the graph. The stock was selling off rapidly here. So rapidly in fact, that before I sold my last 200, I bought 500 more at 38.93. So I had 700 shares and I felt pretty sure, that the stock was due for at least a "dead cat" type of bounce.

I was wrong.

So, I sold 100 at 38.94, 200 at 38.88, and 100 at 38.93. I had 400 shares remaining. At this point, either the ticks were shooting up, or the stock flashed a bid, or maybe I was just feeling lucky, I dunno, but something convinced me that the bottom was in because I bought 800 more shares at 39.01. This was at 10:00. Less than 1 minute later, I sold 700 of those shares at 39. My confidence in the "bottom" lasted all of 40 seconds...

I sold 200 more at 38.98. So I only had 300 shares remaining. And again, the stock broke the low. So yes, I'm losing money at this point, but so far, I've been right in getting out of the majority of my shares just before the stock would break to new lows. I don't remember exactly, but even after all these wrong trades I was only down 3 or 4 hundred dollars in the stock. Not good, but not a disaster either.

I bought 200 shares at 38.85 and then 500 more at 38.95. Then, I sold 700 at 38.96. So again, I'm back to 300 shares. Just churning here... but now, the stock breaks again. Here comes the "disaster" portion of the trade. It's 10:03 or so...

Instead of selling a portion of my remaining 300 shares when the stock broke to a new low, I bought 400 more at 38.70. The stock broke lower, but it hurts more now because I have 700 shares. I sold 200 at 38.55, but then 1 minute later, at 10:12, I bought 800 more at 38.54. So I have 1300 shares. I sell 400 at 38.51. I have 900. I buy those shares back at 38.47... back to 1300. And then the stock breaks and before I can think, I buy more at 38.19. So I have 1700 shares and the stock breaks 38... I was down over $900 in the stock at this point and feeling pretty ugly about it.

Before this final break, I had been doing a good job of selling so that when the stock broke I was never too "committed" to my position. I never had that deer-in-the headlights, eyes glazing over, type of situation. Luckily, this time, the "disaster" only lasted a few seconds. The stock broke back up and sold 1600 of my 1700 shares above 38.40. So I went from being down $900 to being down $200-$300 in a matter of seconds. More importantly, I was still in the game mentally and I was nearly flat in my position so I was able to think clearly when the stock "tested" the old low and held.


Will said...

DT- A quick question- in daytrading, I always trade off the break of a previous bar's range once I get a setup (i.e. need a higher high to get long), and I noticed the first higher high on the 5's was that 1020 bar; was there a particular indicator or volume pattern you saw that triggered your trade earlier, or was it a "seat of the pants" judgement? (I know I often anticipate a reversal within 5min of 1000). Thanks!

Dinosaur Trader said...


Hey, thanks for reading through that very long post... I don't recall there being anything in particular in the stock at the time. What drew me in was the severity of the steep sell-off. But you bring up a great point, I may be doing to many trades by making "seat of the pants" judgements.

I was watching all the other stocks in the fertilizer group as well as the tick indicator. What probably happened is that the ticks shot up over 1000 or I saw POT (who I consider to be the leader of the group) get bid and trade up. The "strength" in the one could have made me anticipate strength in the other.