Yes, There are 'experts' who trade like a Moron
I am going to talk about an imaginary person doing an imaginary trade. The reason I am writing this is to show "what not to do". The charts I will use are generic examples and there is numerous such 'opportunities' exits every day in financial markets. Now, this person can be an 'expert' or can be a 'noob'. From my experience of 28 years of trading in virtually everything that is available to trade, both 'experts' and 'noobs' make mistakes. Hopefully experts makes fewer, and often knows how to correct them.
Day 1
Our imaginary trader John Doe has been trading for a few years, and has a $100K trading account. He is sitting on all cash, and find this perfect opportunity in this stock. The overall market is a nice bull trend, stocks are rallying for a while.
John looks at this chart toward the end of the trading day, and sees a good buying opportunity into this bull market. He draws a nice uptrend line, and he put his favorite oscillator below. He sees the stock and the indicator pair touches the trend line and does an oversold bounce off the trend line. Happened at 1-2 and currently at 3-4 the stock is in almost identical position. He thinks this is as good as it gets as a "buy - the - dip" set up. John buys 2000 shares at $28 and gets a fill. He uses 56% of his account to get into this position. However, like a good trader he is, he immediately placed a stop-limit order at $26 and a sell - GTC order at $32, well below the ATH of the stock. He tells himself, he is risking $4000 (only 4% of his account size) to make $8000 at his set sell price. A nice 2:1 conservative risk-to-reward ratio. He felt pretty good about it. Worst case scenario, John will loose only 4% of his account value, which he is comfortable to risk to make $8000 in likely 4-5 days (because previous rallies were similar in length for that price movement.
Day 2
Next morning, when John logs in to his computer, he saw the following chart:
The stock gaps down to open at $23.60, well below his stop-limit order. This event leaves John in the stock. If the order were stop-market, then it would have been executed at the open as a market order, and would have resulted in a larger than expected loss of $8800, but John would have been exited off the trade, which didn't work.
But John is smart. This is not his first trade with the loosing position. He is a cool customer. He thought there is no reason to panic and felt confident that stock will come back and rally and likely hit his stop-limit order.
Day 3
Next day, John opens the computer, and logs in to his trading account again. This time he is a bit nervous. He even checks the news (although he is confident that all news events are always baked into the price, and no reason to check the biased news media for 'fake news')
To John's complete amazement, the stock opened around $21 and closed the day at $20.05. Now he feels really nervous. Stock is trading $8 below is buy price; putting him at a paper loss of $16,000. He searches for news, but can't find anything. He asks himself, "how can this happen? this is completely unexpected...". He finally decides, that the stock is now way oversold, and is due for a bounce, when that happens he will exit the position.
Day 4
John couldn't sleep well at night. Didn't talk to the family properly in the evening. Next morning when he opens computer he is desperate for some good price action:
To his utter surprise, the stock gaps down at the open around $17 and kept on dropping. When it reach $14; John can't take it anymore. He is a whopping $28,000 under and nearly lost third of his account. He can't take it anymore and hit the sell button at market.
He just thought, that he was making $5000/month on average from this $100K account, and it will him 6 months to wipe out the losses from this single trade! He thinks market is all manipulated. There is nothing true in this world, and thinks seriously about a carrier in Real Estate!
Moral of the Story
- Don't be John!
- No analysis is perfect; nothing can predict future
- Don't expose a large portion of your account in a single trade
- The only thing you can expect, is the unexpected
- If you have a plan, stick to it
- Plan your trade, and trade your plan; no if-but-or coconut :)
Hi i'm John, and I just piled the rest of my account into the same stock :D
Hi John!
I am having fish tonight!
Fillet steak here!
That's a legendary candle! Imagine what happens to John's mind!
Fish are friends.
Not food!
#wearejohn
You caught the bounce too? Nice!
Lol!
Trading is so similar to life and to photography my friend.
Firstly in life we make our plans and then life happens. (The totally unexpected)
Then in photography the best shots that I ever got was unexpected appearances.
I focus my camera on something with the intention to get the lighting correct, a movement catches the corner of my eye, I swing and click and there it is! A prize shot!
At other times I swing and click and it's a total blur.
Just so, one can plan yes, but one can also become unplanned very quickly!
A good post that you have here!
well, the only thing we can expect is the unexpected :)
Indeed my friend:)
Right on. Good story, good moral, baaaaddd day for John! :)
There is always some John in us
Lol. That there is. My name is Jon. :P (or Jonathan.)
Come and join us on LeoFinance. Your content is great.
Just leave John at home 😉.
Thank you. There is nothing much to join. I know about it. I will post from it sometimes :)
John is everywhere doing what called law of reality and expectations; expect that he will be rich but the reality comes with the scenario he was not expecting. He buy the illusion in this case he buy it from himself in the trading field there is no existence for expecting and dreaming there is only the reality and analytics the more you can handle the candle the more profit you get.
One more leasson... never widen your stops. If it hits your stop, get out of the trade . It was not meant for you. I have been a victim of this once
Or never have a stop :)
Stop is mostly for losers :)
That's a new one right there
Leg in on the position rather than going all in will lower buy in cost and slow down draw down. Been through the go all in approach before and learned the hard way. With free to very few cent commissions on trading shares its much easier now to leg into the trade.
No chart data is prefect and only two things in life are certain. That is death and taxes. I am horrible at picking bottoms and tops but do my best to ride the trend.
Yes, in long run we are all dead :)
That’s certain.
Yes leggings in entry can minimize the impact.
I always miss this part. Whenever i get too much confident in a trade, i use full of my balance. And guess what, if the trade goes against me.. Gotta be more careful on this. This is more like a sentimental problem.
Most trading problems are sentimental :) It’s a mind game mostly
Hi @azircon, I see a trading opportunity in every candle. 😁 😅
Seriously, I never would have bought that stock in a chart like this. I saw three impulses uptrend, so there is a high probability of going downtrend to reach $24 sooner or later 😁. Perhaps, I would have waited for the bounce on the oscillator indicator to confirm the upward trend hehe
Do we have the Japanese candle charts for the pair HIVE/HBD?
I enjoyed reading this post 👍
Good for you. I on the other hand, would have made the trade. But I would have gotten out on day 1 at a loss and moved on to the next trade.
Hive/HBD? I don’t think I have seen that pair charted in common places, but I never looked for it either. We can ask people. Normally @abh12345 or @gerber would know or they will know someone who knows :)
i know nothing about HBD :)
trading volume on it on bittrex is probably very low, spread both on bittrex and internal is really high
Thanks! I never seen that chart myself as well
Thanks bro!
This is very good, if someone who is great will start trading, and wants to teach stupid people to trade,
Greetings @azircon, I spent time in this type of business, and I lost a lot of money, from there I did not feel like continuing, the same story happened to me. Thanks for your advice, I will be watching your posts to consider returning to this commercial world.