Sunday, February 28, 2010
Anatomy of a trading error...
Timothy Sykes sent a real time alert out Friday afternoon, announcing that he had bought the breakout of MCGC, a stock that had broken through key resistance at 5 on strong volume. Because the stock had tested 5 and failed several times, he felt this long play penetration was a winner.
Since I smartly never buy or sell his real time alerts using actual money unless I had been "expecting" the call and had already researched it in full, using his actions to verify my own opinions, I decided to paper this just for fun. I should have had looked for fun elsewhere, because the stock market is not a place for cheap thrills.
I proceeded to break every rule in the book, and what follows is highly instructive for all aspiring traders!
It is a very good thing that I had the discipline not to play this for real, because the result was not pretty:
A. I chased the stock, trying to get in ASAP, well past a proper entry relative to the technical markers.
B. I did not even look at the chart, buying on the word of an alerter, to get an instant piece of the action.
C. I ignored the steep distance of the stop loss level from my entry, despite knowing the entry point of Tim.
The outcome is that I am now well under water and still hold shares of a play I entered incorrectly to begin with. Adding insult to injury, later in the same session a proper entry presented itself. I instead entered at the exact high of the day! If I had been patient, I could have entered at no worse than the same price as Tim.
Sykes is in at 5.15, which itself is a bit late, considering that the resistance (now support) that was overcome was at 5. But his downside risk is an acceptable 0.25 or so, and mine is nearly double that, and unacceptable! Intraday support on some level existed at 5.15, so the entry was reasonable, if not ideal.
Since the stock did not fall below 5 after I got in, I held it over the weekend. Makes sense as it is an earnings play with news in play over the course of next week. Tim says it could reach 6, but even if it does and I go green on the play, I get a failing grade!
Never chase, never buy blindly without doing due diligence first, and never disregard stop loss level mathematics, or you will wind up broke and looking stupid...
BOT 200 MCGC Stock 5.36 USD ARCA FEB 26 13:34:02 1.00
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