Friday, February 15, 2008

Some Bad Trades, But Good Chat

I lost money today. All of my losses came in two stocks, DV and RNR.



I made a very stupid mistake in DV. I bought a couple hundred shares early, around $45.75. The stock moved up to the figure. I saw a huge amount of volume go off, I got excited and I bought 600 more shares at $46.02. I was shortly stopped out of my full position at the low of that big red bar, at $45.46.

RNR was the ole get short and stubborn play. It's really a great way to throw money away.



I'm not going to talk about my winners. Instead, I'm going to relay bits and pieces of a conversation I had in the chat room today with my office mates concerning stop orders.

The names are changed to protect all parties...

Me: my problem is just that. if i don't use stops, i feel unprotected
Gid: with the hybrid 25 cents is just noise so i get stopped out a lot
Me: but do you set yours far away or are your entries just spot on?
Joe: "The entry is 85% of the trade" I don't remember what book that quote is from......
Yaz: Dan's entries are always violent
Me: HAHAHAHAH
Me: But on a day like today, the futures are a mess. Are you just shorting or buying aberrant spikes?
Yaz: Dan's entries are always aberrant
Dan: Joe, drop some science
Yaz: that's not the only thing u should drop
Yaz: using stops now isn't careful it's much much more dangerous
Joe: i disagree
Me: don't get all jedi on me
Yaz: the spikiness of trading is so much more than it used to be
Joe: stop placement is key
Yaz: yeah, if you keep em as far as Dan it's just so you don't get destroyed
Joe: exactly
Yaz: but using them like we used to around figs and shit is suicidal
Joe: close stops are horrible
Joe: just hand me your money
Me: like health insurance with a high premium
Me: that's how you guys are usinig them
Yaz: yeah, it's pointless
Duk: goog
Yaz: if you got the number of positions with the size Dan has, I understand
Joe: Dan schooled me on proper stop placement... he should speak on this
Yaz: i was getting clipped in shit today but i just don't worry about it. cause most of the time shit swings back one way or the other. either cause u right to begin with or because it's just choppying around.
Yaz: stops are dead to me
Yaz: but i understand other people using them right
Me: i appreciate the discussion. thanks.
Yaz: i think for dudes like u and me though, stops should not be used
Yaz: maybe i'm wrong
Me: well, you don't like to take pain, right?
Yaz: no, but if you look at your P&L as the pain indicator rather than the position, then pain changes.
Yaz: like Duk got squeezed for 50 cents on 4000 M but he held because he was making money anyway
Dan: look at your ass as the pain indicator
Me: jesus...
Gid: i want a look
Dan: yo Joe, what did i say about stops to u
Dan: i talk a lot
Joe: i think we all should be conditioning ourselves to be emotionally detached from out of the money pnl
Yaz: "stop tickling!"
Me: joe, that's true. it's smart to be unattached.
Dan: lol
Gid: when i am getting stopped out i usually should be adding
Yaz: EXACTLY
Joe: look
Me: but sometimes you're just wrong and you have to take a loss. without stops, how do you guys determine that?
Joe: if that's the case, it's a problem with your stop placement
Dan: if what's the case
Yaz: i think it's a case by case basis
Joe: "when i am getting stopped out i usually should be adding" that case
Joe: to summarize what you said Dan
Dan: please summarize
Yaz: Dan doesn't understand how normal people use stops
Dan: say it in the same language
Dan: i understand perfectly well, Yaz
Yaz: cause he has no fear of anything
Dan: i'm not rainman
Dan: i have plenty of fear
Yaz: only of vagina
Duk: i'm long mad AXP
Dan: I'm always scared
Joe: you explained that the stop loss should be placed where the stock should not go unless it's reversing... you should not place stops based on how much money you would not like to lose
Dan: but i have faith in myself that in the long run it's gonna be okay
Dan: yeah, i said that
Me: interesting
Dan: but the question is... how do you decide where you no longer think its a long... that's where being in tune with what the markets are doing comes in
Dan: the basic idea of what i told Joe is that u decide where the stop should go first, then decide if that amount of pain is worth putting on the trade at all, or what size you can handle it on
Me: gotcha
Dan: your own pain threshold should not determine stop placement, which is an absolute
Me: that makes a lot of sense.

Here's the stats:

P&L, -$651
Best, WLT, $203
Worst, DV, -$447

34,500 shares traded.
10 winners, 13 losers.

6 comments:

Glen said...

"Joe: you explained that the stop loss should be placed where the stock should not go unless it's reversing... you should not place stops based on how much money you would not like to lose".

Joe (and you) write like normal human beings. For he rest of them...call the interpreter.

Dinosaur Trader said...

Glen,

Well, in the world of "internet chat" standard english rules don't apply.

Hopefully, you got the general idea.

-DT

The Lonely Trader said...

This is the same stuff people talk about in the currency markets. The wisdom is timeless -- and the best wisdom is always tactical as well. If people don't understand it, they should cut out the italicized stuff and past it on the wall or on their monitors and just let it sink in over time. They should get it before too long.

I wish I could hang out in your chat room DT.

wincity said...

Using stops is indeed a complicated topic. Sometimes I feel we'd all be better traders if we just ignore stops. Of course, if you bought BIDU at $400 or GOOG at $750, you got to honor your stops.

I wonder why you decided to long DV? The sub-prime student issue may have just started to play out. It may be a non-issue but still it isn't a safe long here. I shorted it later in the day hoping for a break-down. Almost lost money. DV longs are really stubborn.

Dinosaur Trader said...

Win,

I was watching ESI turn positive on the day. He's been hit so hard the last few days I thought a sector-wide bounce might play out, if only for a couple hours.

-DT

Dinosaur Trader said...

LT,

Yeah, the chat room is office specific, meaning only employees of my company working in that office have access.

-DT