Welcome back – I hope you are enjoying the long weekend. I’m having a good time because I’ve been getting back on a routine for practicing piano and studying for the SIE exam.
The last month has been quite good in terms of following my trading plan and I have also being rewarded for it. My normal swing trading win rate is about 43% over 200+ trades, but for the last month, I’ve won on 8 out of 9 trades, with the wins being significantly larger than my losses. This is interesting because the month before (February), I had 3 wins and 5 losses, with the losses being significantly larger than my average loss.
A specific stock trade I took a month ago was bothering me until recently. I think that because I got over this issue, my recent trades have been more successful. What happened during this trade is possibly the worst thing that can happen to a stock trader or investor. In fact, I’ve found that this “worst thing” applies to other areas of my life as well. I’ve noticed this issue occur in poker (Texas Hold’em), piano practicing, and studying or taking exams.
Before I discuss what I think is the worst thing that can happen to a stock trader or investor, do you want to guess what it is? I’ll share my thoughts below the following chart of SQ.
I believe the worst thing that can happen to a stock trader or investor is doing something wrong, but getting rewarded for it. In the above chart of SQ, I entered at around 225 (arrow points to the candle I bought on) with a stop loss at 215 and a profit exit at 265 (risk 10 to get 30). Everything is good so far – I’m following my trading plan – buying an up trending stock on a pullback with a minimum risk to reward of 1 to 2.
I sold at around 250 three days later before the stock price plummeted. I made a large profit, but I didn’t sell at 265. I sold too early. But wait, I made a lot of money, isn’t that good? No, the rest of the chart doesn’t matter – just because the price dropped enough to stop me out of a highly profitable trade doesn’t mean what I did was correct. In fact, what I did was extremely bad and wrong. I simply sold because I was scared I’d lose my profits, and I broke my initial plan.
I learned an important lesson from this trade – either have a very specific plan for what I’ll do after price fluctuates BEFORE taking the trade, or don’t change anything from the original plan.
Below is another one of my recent trades, but this time I didn’t sell early despite having extremely strong urges to sell before my profit exit. I learned from my mistake, and I just happened to be rewarded for it this time. I also had a much more detailed plan for this trade, which I followed precisely.
ORCL daily chart below:
For next week, I currently only have one position (long position in MTCH) which has gone my way surprisingly quickly so I’ll be holding onto it and not selling early. My most recent loss was a long position in YY, which is highlighted in the previous blog posts. I did a good job cutting the loss early. The stock ended up swinging violently higher right after I sold, but that is ok, I followed my initial plan.
S&P500 is at all time highs, so my current plan is to either stay long and add a few long positions or wait for a pullback. I’m also considering shorting stocks if we gap up large on Monday.
Bigfry's Blog 
Hi Nathan – Have you considered not exiting trades until the close? Because stop losses to get triggered on intra day but not at close.
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Hi Foo, thanks for your comment – that’s a good strategy to consider. This strategy would reduce whipsaws by a lot (like in YY), but also increase risk since the stock could move further in the wrong direction before the end of the day. If I exited trades only at the close, I also need to be more actively monitoring my positions, and be more disciplined to close them out if they went past my stop loss.
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