Your entry point is crucial to maximizing your profits... your exit point is crucial to solidifying your profits. Exits, imo, are more difficult to figure out and I'll use my trade today as an example to explain why I think this point.
I shorted 1,000 shares of PNX @ $6.30 this morning... shortly after it dropped to a LOD of $6.16 (or $140ish)... of course I didn't even think of covering because my ego didn't like the $140ish profit mark ... WTF?! Noob, do the math... $140 divided by 10 minutes (which is how long it took to hit $140 after I shorted it), that's $14 per minute! Most people in the working world don't make that per hour! To give myself a bit of credit, $6.16 wasn't at my 3% mental exit point, so I can't say I got greedy at this point...
Two hours later I'm still holding the same position in PNX, however the price is now at $6.60. I "stretched" my cut-loss rule thinking that maybe this was some kind of fake-out, or squeeze (if looking at the 30d/30m chart). However it wasn't... I didn't like what the chart was telling me at this point, so I covered here for a $302ish loss. Of course I'm not going to shy away from a loss, so I kept watching this mofo like a hawk.
I was chatting back and forth with Ryan from the GOTS chatroom about PNX, both of us patiently waiting for it to crack, and we both came to the conclusion around the $6.60ish mark was where PNX was going to crack... I had to get in, so I tried re-shorting it at $6.65, but no dice... I got another 1,000 shares @ $6.60, approx. where the 10/60 cross occurred.
Great entry Noob! PNX dropped all the back to $6.30... (this is where the greed takes over). Sweet I've regained my $302ish loss... naively I didn't think it would bounce... there was still much more downside... (that said, today was a bullish market... and the largest single day gain for the DOW in it's history... not a nice day for shorts... live and learn!), so at this point I'm just under 5% profit... right in my target "cash zone" - NOTE: "cash zone" is when I take profits...) but today I was greedy and I lost.
Rather than take my money back... my on-the-fly-judgment was clouded by $$$. Bottom line... I was wrong in my execution. And, once again my greediness not only prevented me from getting my money back, but also cost me an additional $70ish in losses when I covered my second short at $6.64!
So, as I posted in the GOTS chatroom just before I logged off... to all the newbies out there, newer than me... remember these words from a seasoned trader and one of the few people out there who really gives a shit... chatroom goddess "Laura".
"TUITION IS HIGH IN THIS GAME..." (Thank you for this invaluable lesson... one of the many!)
Cut your losses quickly and don't be greedy! Take that money! The market made $1.2 trillion dollars today! There is LOTS of money out there... don't ever think it will run out. And if a stock continues to breakdown, after you cash-in, re-short the SOB! At least your preserving your profits! Screw the commission charge of $20, it doesn't add up to a hill of beans compared to what type of money you will make!
I can't stress this enough... I really think that exits are harder to establish than entries... especically when you see all that free money on your screen... my recommendation is to establish a mental exit point ie: your "cash zone" (that's what I call it) of 3-5% (when making money), just like cutting you losses quickly at 3-5%.
NOTE: There are ALWAYS exceptions to this rule... it comes down the the individual trader and what they're comfortable with, what the chart is telling you, and how much of a gamble they're willing to take. Today I lost.
BottomFeederMillionaire (can someone tell me how to center this??? THANKS!)
2 comments:
Thanks for this post noob. Keep up the good blogging. Many trials and tribulations... me too man me too.
Lots to learn definitely. Let's just go sit by Muddy and Laura for a few weeks and watch? =)
Noob,
You're right that exits are the toughest thing. I feel like I've gotten pretty good at entries and picking good plays. But timing exits is tougher. Of course, you're never going to be able to time exits perfectly...you just can't predict how the stock is going to act once you've entered.
My "cash zone" is a minimum of 10%, or a 10/60 cross or something similar if I don't make it to the 10% minimum. I won't even bother entering a play if I don't feel I have the probability of making at least a 10% return on my position.
The problem with a cash zone of 3-5% is that it's the same as your loss zone of 3-5%. So, it puts pressure on you to have way more winning trades than losers. Of course, you want more winners than losers, but also you're going to make mistakes. I'd rather let my winners run to help make up for a potential string of screw-ups.
Post a Comment