Sell Stop:(GMCR), Continued Review - Focus on Impulse and Risk Management

Happy Independence Day to any proud American citizens out there!

Thursday my addon buy for (GMCR) stopped out for a loss. Rather than address this trade specifically, I'll include it from a philosophical standpoint in my continued review of this year's trading. I believe I've been able to filter down to some key points that will further force me to manage my risk better.

First of all, I believe I need to better manage my impulses. This is more difficult and not as obvious as it sounds when it comes to trading. Part of good trading is recognizing when a good stock is making the right move and being willing to buy it at that moment - likewise on the sell side. However, this is a very fine line to walk. I can easily be whipsawed by fluctuations if I misinterpret them as signs of a trend.

Secondly, when I'm buying off a support level like a moving average, I would rather buy close to the moving average with a tight stop than to wait for the high volume move up off the line. Maybe I'll change my mind about this after more time, but from what I've seen this will put the odds more in my favor.

Most importantly of all, I need to manage my risk better. I put too much capital at risk in the market at any given time. When I take several new positions within days of each other, none of them has time to move in the right direction and give me a profit cushion, allowing me to raise my stop loss order. This means I have 5% at risk in several positions, effectively putting 5% of my total portfolio at risk at one time. With margin, this number can get even larger. From this point on, I will have no more than 3% of my capital at risk at any given time. I may eventually lower this number. I will not be able to take new positions until the positions I hold are working - this alone should help me tremendously.

As far as the trade review goes, the next one on the list for me to discuss is just downright embarrassing. This was my attempt to short the S&P 500. Three times.

Once I saw the distribution day early in the new March rally and realized this meant there was a good chance the rally would fail, I stupidly attempted to short the S&P 500. There's not much worth discussing here, I've been investing for only two years and I have absolutely no business shorting the market. This group of trades comprises half of the money I'm negative on the year.

With my next post I'll begin to investigate some trades I might be able to learn more from than this simple and obvious mistake.