(LFT) flashed a warning sign on Thursday when it came within a penny of the 52 week high intraday only to reverse and close down on the day. On Friday I stopped out of the stock for the second time.
It does not bother me to lose money on the same stock more than once. If a stock looks strong and stages strong breakouts, I'm willing to purchase it on a new breakout, even if I lost money on the last breakout. Why? The stock has no memory of me. I should have no memory of it. Some stocks may fail to breakout two or three times and then go on to huge gains, I saw one do this my first year investing, I'm afraid I can't remember the stock at this time.
Bottom line is I evaluate the fundamentals and technicals and if everything looks like it's in order, I purchase the stock. This was the case with (LFT), and looking back on it I don't regret the purchase. There may be an issue with the stock or it may be the market getting a little 'toppy,' either way I bought within my system and not all buys will go on to be winners.
(ARST) earnings came out after the close Thursday and they beat estimates by 38%, yet the stock dove 13% in after hours trading. That's a nerve wracking thing to watch, since it would've turned my 11% gain in the position into a 5% loss. Nonetheless, the approach I took was to leave my stop in place - I don't trust extended hours trading, institutions don't trade after hours and therefore it is often not a true representation of the supply and demand for a stock.
This said, it still was a difficult position to be in Friday morning, and I wasn't sure quite what to do - I never am in these cases, a problem which I will correct in my analysis below. For one thing, I don't like to leave stop orders in place at the market open when I know there is going to be this kind of volatility - the first 15 minutes can shake me out of a position only to see the stock move higher once it settles down. Obviously, the problem with this approach is that I have no protection from catastrophic losses.
The second issue I had was with my add on buy. As I've said, I want to have a 10% profit cushion heading into earnings day, for exactly this kind situation. With the size of my account, I've been setting my stops based on my cost basis - I'm a small enough trader that I don't want to have multiple commission charges where I can help. What this meant in this case was that my secondary buy was exposed to a greater percentage loss than I would normally accept.
In the end, I decided to take the stop loss off for the first 15 minutes and look to get out of my second position for a 5% loss if possible. The stock opened down 11% and came up to a point where I was able to stop out on the second position. The problem was, the stock continued straight up from there and turned the loss at the open to a couple percent gain at the close. Needless to say, I felt a bit dumb for selling that second position, but I had no way to know the stock would continue to rise.
With the partial sell of (ARST) and the stop out of (LFT) I was feeling pretty dejected on Friday. I'm back in the red this year despite my recent winners, and that left me wondering if I can ever really get this right. Whenever I feel that way I choose to take a hard look at what is standing in the way of my ultimate success, and correct it when possible.
Evaluating this year's activity, several things became clear to me:
- If I had followed my own rules, I'd be 3-3-2 for my record investing this year, meeting my goal of a 50% success rate and have more capital. It's the dumb stuff like shorting and buying (SNDA) nowhere near a buy point that is killing me
- If I have a potential big winner, I should at least let it test the 10 dma before bailing. I might've gotten an extra buck a share or more out of (FUQI) - I could still be holding it today
- With the small size of my portfolio, it makes more sense to set my stops once for the whole position off of the cost basis and then NOT MESS with it. As I said, it seems like I burn myself every time I try to meddle with my stops.
So once again it's good news bad news. I have a lot of stocks that I was close to profits on and bungled, and half the time I lost money it was simply because I didn't follow my own rules.
Unfortunately, it may be some time before I'm able to demonstrate I'm learning my lessons. It looks to me like this rally is topping and it may be some time before we rally again.
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