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'I've done all the dumb things' - Suggestions?

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Panacea

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Hi everyone. I've been lurking here for a while and enjoy reading many of the discussions on this site. By way of introduction I thought I'd ask a practical question about a trade that I am in the process of murdering.

I'm a newbie with very little capital so I thought I would take it slow. I've spent the last few months reading books, learning the basics of TA and watching the market. I read about many of the mistakes that people make when starting out, then promptly made all of them myself. Eg.,

1. Not using a stop loss.
2. Not following my plan.
3. Believing the hype ("this ones gonna skyrocket when the ann comes out!")

Three days later and i'm sitting on a 35% paper loss.

I am not too worried about the financial cost as it's money I can afford to lose and I expect to take a few beatings along the way, but on a practical note, I guess i have three options -

1. Realise the loss (which may mean selling near the bottom as the stock is now approaching a previous support level).
2. Average down (this seems like throwing good money after bad).
3. Put the shares in the bottom drawer (where bad stocks go to die).

I've deliberately not mentioned the company, as I'm more interested in strategies than discussion of the actual stock.

Apologies for the long-winded post. Thoughts, anyone?
 
I try repeatedly to drum into my head -dont get emotionally stuck on a stock.
Most companies have great upside potential if the planets align etc, but rarely deliver FMG type gains.

I'm probably as green as you are but I would advise you to set a stop loss at 5-10% and protect your capital. Downside to this is in a volatile market you may be constantly selling at stop loss then rebuying and repeating the process until, the law of diminishing returns as my dad used to say.

Good luck.
 
Panacea said:
1. Realise the loss (which may mean selling near the bottom as the stock is now approaching a previous support level).
Click to expand...

What if that support level fails? Are you going to wait and see before exiting?

My advise to you is to realise the loss immediately and forgot about "trying" to wait for the stock to raise back higher to reclaim the lost.

Yes, it may rise back after you have exit and you will regret it. The other alternatives are that it will continue to drop and you will look for the next "support" level to justify your unwillingness to sell. What will you do then? When will you actually exit?

This is a simple trap that most new players find it hard to resist.

My advise to you is to exit immediately with NO REGRETS and put the remaining capital back into your drawer and rethink about your trading plan again. Do not fully commit until you know what you are doing.

If you want to "test" the water and try it out again, then only do it with fairly limited money that you can easily afford to lose. In my opinions, trying out your psychological capacity through real life trading with REAL money and to get practical experience is extremely invaluable . I believe that EVERY "successful" single traders on this planet have went through some sort of losses before they have developed the necessary discipline to follow a trading plan.

Good luck.
 
Thanks for the prompt replies!

I think I will sell and spend a while licking my wounds and doing my homework. I actually see some positives in this experience - I've been given some very clear messages about what not to do, and it hasn't cost much in the scheme of things.

This particular stock is fairly illiquid and looking at the market depth there are a couple of big sell orders lined up near the previous close.

I have also signed up with a broker that offers stop losses. I won't make that mistake again.
 

I've had plenty of stocks that have given me the same result. I do not use and never believed in stock loss arrangements. If one of my stocks show a loss and many do I look at the fundamentals. I look at the price the stock currently sells for. If I decide it is a reasonable buy at it's current price then I keep it (sometimes as a bottom drawer stock). If I decide that it is not then I sell. Some of my best investments would not have been held long enough to prosper if I had used stop losses.
 
following on from Temjins post.

another idea is to apply money management to your trading plan and have a predetermined exit point before you make that trade. once u make the trade u have a stop loss order that is going to take u out of the market if it reaches that point. this takes the guessing out of exiting, but it opens up a whole new frontier of mental games for a new trader!

at the end of the day we all want to make money but the key to trading is survival. You have to protect your capital so u can play again.

good trading to u Panacea
 
nioka, >Apocalypto<,

Your conflicting approaches to stop-losses is what i'm grappling with. Obviously there's no easy answer.

One thing is becoming pretty clear to me - I should have planned for all the potential outcomes BEFORE entering the trade.

Sir Burr,
I know the song well! Cheers.
 
well Panacea, my worth - from the peanut gallery

35% is a lot to lose in 3 days!, and unless there's a reason for the loss other than "normal fluctuations", then I reckon it would be worth being patient for another week or two, unless you know some other "hot lead" ( yeah right lol).

Sometimes I argue it this way... (suppose I had say BHP and it went down 10%) -- I'd argue , should I sell? - hell if I was sitting in cash, I'd be buying !! so why the heck would I sell under the same logic. ?

Nearly all my mistakes have been to sell in a trough and turn a paper loss into a real loss - and had I just stuck around a few weeks , I'd have come out "a lot better" and/or way ahead.

If you write down your portfolio distribution from 6 months ago - and from 12 etc - and see what would have happened if you hadn't intervened AT ALL - I find I (often) would be better off.

I know the usual advice is to sell "dogs", but if it's not yet proven to be a "dog" - then I'd (probably) be holding, always assuming the stock had some positives 3 days ago

Then again, I got out of CDR when it was down about 10% - and these days it's down about 90%

Gambling mate - it's all bludy gambling if you ask me .

PS as for stop losses - I don't use em either - a guaranteed 5 or 10% loss (whatever) imo - where those who manipulate the market know just how far to drop the price to trigger the damned things, then buy up big - then tomorrow they bounce back

- but heck I'm an amateur here. - Maybe, if you DO sell, then monitor what WOULD have happened had you held - just for fun
 

You probably need to decide how you are giong to trade first.

If you decide to use T/A imo you need a stop.

If like nioka you want to use fundies and not have a stop, you need to have a lot of faith in your reading of the fundimentals.

Build a plan around what suits you and stick to that plan.
Plan the trade and trade the plan.

Good luck
 

Gambling maybe. An educated guess puts the odds in your favour.

I often wonder if those promoting a 5% stop loss purposly do it to help them manipulate the market and actually make trades to drop the market.
 

Thanks nomore4s, I was just thinking the same thing. I guess I still haven't made a clear decision about TA / FA, trading / investing, or a combination and therefore haven't got a properly developed plan.
 
2020hindsight said:
35% is a lot to lose in 3 days!, and unless there's a reason for the loss other than "normal fluctuations", then I reckon it would be worth being patient for another week or two
Click to expand...

This is crux of the matter. From my understanding, the companies fundamentals are unchanged and the mid - long term upside still exists. If the announcement had read "CEO embezzles XYZ, last seen at Kingsford Smith Airport", I'd have a good idea what to do.
 
Your plan must address risk. How much of your capital are you willing to risk for the returns that you seek? The higher the return the higher the risks.
If you want 20% on your capital then losing 35% of it is ridiculous. If you seek 100% return then you may have to be prepared to lose 35% at some stage.

[After a 35% loss, you will need a 53% gain just to get back to where you were.]

It doesn't matter which technique you use, TA, FA or a combo. If you lose your capital then you cannot continue.
 
Panacea said:
Thanks nomore4s, I was just thinking the same thing. I guess I still haven't made a clear decision about TA / FA, trading / investing, or a combination and therefore haven't got a properly developed plan.
Click to expand...

You can do both. I like to think that I am both a trader and an investor. The tax dept call me a trader. I call myself an investor who sometimes trades. I usually trade only on things I see as investments. I particularly like to trade to a point where my investment is free carried. This is relatively easy to do in the penny stocks. I'm free carried now with stocks like ADI, AUT, NSL, FNT, TEY, TAS, AOE, ACE, ABJ, PRE. I traded them to get them to that stage.They are now investment stocks.

I have a dog called NWR, could sell it at a loss but decided to trade it until it repays me. I hate losing. Sometimes it doesn't come off. I hold AAE and LAF that are suspended.

And yes we all do dumb things. It's called being human.

As nomore says "Plan the trade and trade the plan." That I do agree with.
 
The really dumb thing is not learning from your mistakes.
 
As nomore says "Plan the trade and trade the plan." That I do agree with.
Click to expand...

And as I keep saying.
Trading a plan which you have no idea wether its profitable or has the opportunity of being profitable is just as dumb as not trading with any plan at all.
 


nioka,

Newbie question... what do you mean by trading stocks until they are "free-carried"?
 
tech/a said:
And as I keep saying.
Trading a plan which you have no idea whether its profitable or has the opportunity of being profitable is just as dumb as not trading with any plan at all.
Click to expand...

Thats a good point.
 
Panacea said:
nioka,

Newbie question... what do you mean by trading stocks until they are "free-carried"?
Click to expand...

Example.

buy the stock at $1
At 1.20 sell the initial stock cost outlay.
Keep the profit running.
The stock is now a fee trade.
to lose all the profit it would have to be delisted.( go broke).
 
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