Monday, March 19, 2007

The perfect storm

(To read this post, I suggest tuning into track #50 over on the Forkcast. It's the Black Lips song "Not a problem.")

Anyway, here's the story.

Monday morning, bright-eyed and bushy tailed. AXR reported earnings. They beat on top and bottom line and they are gapping up. The stock has nearly been cut in half in the last 2 months, so I figure, "Why not give it a whirl?" I figured I'd buy 500 shares at the open and keep a close eye on it. If you read this blog last week, you know it won Freaky Hybrid Trade of the Day "honors" on Friday, so I knew what I was getting involved with here. A thin, volatile stock that just released earnings. "So", you might ask, "Dinosaur Trader... knowing this, why would you trade this stock? Your confidence has been down, this stock is nuts... sounds like you could get hurt here."

At this point, I may answer that the dinosaurs went extinct for a reason, they couldn't adapt. That may soon be my fate too if I don't start listening to the voice of reason more. The real answer is that I sniffed opportunity. It's why you make any trade.

I thought I'd buy and it'd trade up rapidly since it'd been so beaten up in recent months. I thought the small float and the thin trade would benefit me, that's why I bought a large position (500 shares is a "large" position in a stock that could move 2 points on 3 or 4 trades) at the open. In my head, I saw the stock gapping up and moving immediately higher. I envisioned panic buying and short covering and I saw me selling 2 or 3 points higher.

The exact opposite happened.

By 10:15 I was nearly down 3 grand and sweating...

Here's what happened. The stock opened and immediately broke lower.

Look at that first 5-minute bar, the stock had a 2.5 point range in the first 5 minutes. It took 30 seconds and only 3300 shares for AXR to move from 87 to 84.50. Almost every trade was a trade for 100 shares and almost every trade smacked the bid. Having a bullish mindset on the stock made it nearly impossible for me to react quickly enough. It's hard to go from bullish to bearish in 30 seconds. Instead, I thought, "well, there's the shakeout and now comes the bounce." I was wrong. I threw in a sell-stop for 200 shares at the new low, or 84.49, and was filled somewhere in the high 83s.

I was still long 300 shares of a stock that was trading straight down.

But still, I was waiting for the "bounce" to tell me it had all just been a bad trade. I put another sell stop in at a new low which at the time was 83.06 and sold a couple hundred more shares at 82.87 and 82.71.

I had 100 shares left and I was down close to $1500. I'd been trading for all of 15 minutes.

Immediately, the stock bounced back up over 83. Convinced that the bottom was in, I bought 400 shares at 83.47. The "high" of that bounce was 83.48... the stock immediately broke 83 again. I sold all of my shares at 82.88 and I was down almost $2000.

It's 9:50. I've managed to lose $100 a minute since I started trading.

The next drop was nauseating but luckily I was out of the stock. But when it traded down to 80 I decided to buy again. I was filled almost a point higher, at 80.93. The stock yo-yoed right back down to 80 and I sold 200 at 80.15 and 100 at 80.02. That was the problem... the old low was 80.01 and I was filled at 80.02. The stock didn't break the old low. So, I bought again... 400 shares at 80.57.

The sellers wanted more blood though.

The stock quickly broke 80. I sold 200 at 79.34. It ripped above 80 again. However, this time I was just happy to get out close to my last buy so I sold my last 200 at 80.34. I was down over $2500 with no more shares in the stock.

My eyes were more or less glazed at this point. I was down $2500, which eclipsed my gains of last week by over $1000. Add these losses to my losses of the week before and I was nearly out of capital. I was expecting a call from the risk manager. I sat staring at the screens watching them blink light blue. The great irony of the morning was that every other stock on my screen except 2 others (I have over 100 stocks on my screens) were green. The market was up almost 100 points. I walked downstairs and made a cup of tea. My wife and I traded insults.

I came back up and saw that the stock was trading between 77 and 78. I bought 300 shares at 77.76 and put a stop in at 77. Miraculously, the stock traded up. I bought 100 more at 78.60 and then quickly sold 100 at 79 and another 100 at 79.04. I got nervous and sold 200 more at 78.74 and 78.68 and I was out of the stock again.

The stock broke lower and then bounced. I bought 200 shares at 78.20. At 10:15, the stock resumed it's dive. I sold 100 shares at 77.11 but then bought 300 more at 77.56. So I was long 400 right before the stock broke 76. I have no idea what my p&l showed at this time, but I was probably into my firm's capital. I'm quite sure that my name was in red on some screen in someone's office and that they were dispassionately discussing my fate.

My 2 year old son was in the next room with my wife. He was screaming at the top of his lungs, "No pants! I don't want my pants on Mommy!" They were getting ready to go to "cooking" class. I stuck my head out my office door. "Would you get his fucking pants on and get the fuck out of the house? I'm down 3 or 4 grand and I'm trying to be calm and you guys are in here screaming and I can't get out of my own fucking way!" I sat down at my desk, and I remember quite clearly, that I was talking to myself and shaking my head but I don't remember what I was saying.

I sold 200 shares at 76.65. A minute later, I bought 200 shares at 75.59, and then 200 at 75.85. The stock seemed to be calming down. I heard the door close as my wife and son left for their class. I bought 200 more shares at 75.71 bringing my position up to 800 shares.

In a few minutes, the stock would spike a couple of points allowing me to release 100 shares at 78, 79, 78.56, and 78.72. Later I would sell more at 78.90, 78.35, 78.20 and 78.39. After all of the drama, I had pared my loss in the stock from over $3000 to just over $100. My p&l stood at $97. I was physically and mentally exhausted.

Now if only I could repair the damage this trade caused to my marriage...

So, when my wife came home I apologized for being a stressed out, red-faced lunatic. She understood, kind of. We spoke and both agreed that maybe I need to get away. So, for the next 2 days while the Fed has their meetings I'm on hiatus.

Cue the Mary Onette's song (#4) "Lost".

And then, hopefully, the Deerhunter song (#29) "Like New".


onebadtrade said...

Nice super comeback. I don't know what I would have done if I was down $3000.

Dinosaur Trader said...

Thanks, OBT. I took your handle to heart and kind of ran with it! Onebadtrade, indeed!

Anyway, I was happy to come back but it really wore me out. I'll trade again Thursday. Good luck til then.

mOOm said...

I lost $10,000 in a day (in 2005) on a single stock once.... Just totally froze.... I mainly trade index futures now. Lot less scary :) My gf was just saying to me yesterday: "you seem to be handling trading much better emotionally now than when I first met you". I told her that that was the main reason why.

Dinosaur Trader said...


How do you trade index futures? Do you mean like, SPY and DIA? Are there others you can trade? If so, how?

$10,000 is a big hit in a single stock. Unfortunately, I can understand what you were going through that day all too well...

Thanks for you comment. I'm glad things have evened out for you. It's good to be able to make money, but it's more important to be able to maintain your sanity.