Tuesday, May 13, 2008

Respecting Stops

I think most of the time, when traders say they need to respect their stops, they're talking about the stops they place to control downside risk.

They'll set a stop, say, at $50, and if the stock comes down to $50.10, they then move that stock down to $49.85 or something, to give the position "more room." Then, some traders even add more...

I am, of course, familiar with that particular trading problem... I've been there. However, I'm having a slightly different problem with my stops lately.

Lately, when I'm in a winning position, instead of following the stock up with a stop, I cancel my stop and sell at market, only to watch the stock continue to move in my favor. I think this comes from my current "confidence crisis" because I'm so afraid the stock is going to reverse and take me out at a loss, that I sell and take whatever profits I have.

I know this is not unique.

I think that ultimately, it's a better problem to have than cancelling stops on the way down and not being able to accept losses, only to watch them mount. However, it may be equally frustrating.

I had a few cases today where I sold out of positions instead of respecting my stops... with longs in YGE, MLM and GWW. Had I simply respected my stops, I'd be green, instead of slightly down.

First, MLM. I showed good patience not getting involved directly at $115, because I suspected a hosejob. I bought at $115.21, when it emerged from the base. The position immediately looked good, because it got some volume right away. This was an HCPG watchlist stock, with the target as $116. I checked the daily and saw that back in February, it gapped down from $116.96 and so I thought if it had some mojo, that it could even fill that gap. So I placed a sell limit at $116.24 and watched to see what would happen.

At $116, it hit some turbulence... but really, in retrospect, very, very minor turbulence. Still, I was afraid the stock would reverse back to my entry, so I took my $60 gain instead of respecting my stop and my target. Perhaps I was so afraid to lose my gains because this trade basically brought me flat on the day... still, had I respected my target, I'd be up $28 on the day instead of down $14.

The next stock, GWW, was one from my watchlist. I was expecting a run to $89. Again, I bought at a very good time, and was not really in danger of losing money on the trade.

As you can see, the stock ran straight through $89, picking up volume along the way. It ran easily up to $89.50 before taking a breather and forming a tight base between $89.35 and $89.50.

I save the most heartbreaking for last. YGE was another HCPG play and a run to $24 was expected. While the stock jerked traders around early, it cleaned up nicely into the afternoon. I think the main problem I had with this particular trade was that it came in the middle of the day... a time I don't like to trade actively.

As you can see from the graph, I completely fucked up this gem. I kept buying higher and getting more and more nervous... Really annoying to look back at that and think about what could have been.

Meanwhile, I have him blogrolled, but if you want to see how a trader at the peak of his game handles some of these same trades, go check out Wall Street Warrior.

Anyway, today was a battle. But really, I only have myself to blame for losing money in KSU, a complete waste of a stock. I need to avoid losing money in shit like this...

Bottom line, if I can have more bad days like this, where I lose only $14, I'll be a happy trader. Despite my poor performance, I can take some positives out of today.

Here's the stats:

P&L, -$14
Best, YGE, $249
Worst, KSU, -$170

13,600 shares traded.
10 stocks traded, 5 winners, 5 losers.


Pete said...

why not peel partial on discretionary basis and let a slower trailing ma violation stop you out on rest/or a trailing stop below recent consolidation areas- not just 1 or 2 bar lows.

Tomer said...

I agree with about losing 14$ is a "good thing".
But today you've had 5-5 win to lose, and yet you break even, which means either commissions got you, or maybe you've taken losers that are bigger than winners.. which is what the all "stops issue" is all about.
Try to relax, and follow the rule "let winners run" :)


Dinosaur Trader said...


That's definitely my plan once I begin to size up again... since I've been only trading 200s, that's been a tough strategy. Still, I could place 100 down there... I really need to get back to 300s and 400s though. Meanwhile, hitting the sunrise session tomorrow morning... cant' wait. Haven't been in the water in a week.


Always good advice to "let the winners run." Today, I probably paid $70 or $80 in commissions. So yeah, I was gross positive, but net negative. The net is the only thing that matters to me.



Hi DT,

What type of size are you using that makes you want to jump out?

I know when I use large size I will be much more anxious and I did so today on CSIQ buying at 41.02 and selling at 41.25, so I feel your pain. If I had smaller size I would have left it and started surfing for more ideas.

Love the blog...keep up the good work.