Bull,
I did mention a specific point to cut losses on the GT trade. Technically, I should have been out of the trade. I wasn't at the computer when the price passed my stop by a penny and therefore, wasn't able to send in a sell order. When I got back to the computer, the price had already started back up and I gave a sigh of relief.
If I were running a newsletter, or charging for information, I would have had to count GT as a trade that showed a loss, as opposed to a trade that gave me a nice gain over a two week period.
One of the mistakes that most technicians make is that they try to apply linear mathematics to a non-linear world. The market doesn't know what a moving average or protective stop is. The market does what the market wants to do.
In setting price targets and stop losses, the idea is to set guidelines for the trade, not absolute strict rules. I've missed many a trade because my limit price missed by a penny or two. I've seen where newsletters say buy between 12.15 and 12.25 and the price gaps to 12.45 and I let it go only to see the price run to 15.00.
Knowing when to activate a stop or sell takes practice. I've made many mistakes trying to find a balance between the two. After going through my trade journals, I can see where I made mistakes in applying these guidelines.
I'm thankful that Carl brought it to our attention. It has caused me to reflect on a strategy that I hope will be useful in the future.
One of the things a trader is supposed to do is stay in the same time frame. In other words, if using a daily chart to enter, use a daily chart to exit. If using an hourly chart to enter, use an hourly chart to exit.
In the future, unless there is bad news or some other incident to cause a stock to go against me, I will use the closing price as my stop, even if it's a little more than I wanted to lose.
So, if my stop on a stock is 9.15 and I see that intraday it is down to 8.95, I will wait until the close to trigger the stop unless negative news came out that day. My reason for this is that a lot of stocks bounce back after the stops are taken out. Candlesticks such as hammers and hanging men are good examples of where the price was down significantly intraday and bounced back up by the close.
This isn't an excuse to explain the GT trade, I just wasn't there when the price hit my stop target. However, this did provide me an opportunity to focus on a strategy on the best way to deal with stops.
dabum |
