Always Be Learning: Exiting Too Soon on a Losing Position

It has been a successful month on many fronts as we started buying aggressively on January 9th. But I made some strategic errors that were really costly. There is always another train at the station, so learning to not make these mistakes again is the only value in a losing trade. I think it is good to share, as the market always keeps us humble. Learning from my mistakes is a constantly evolving process. This week was only one week in a lifetime, but it's hard to adjust in real time.

My analysis of the big run starting in early January was very accurate, and once I had positions on, I just needed to wait. Here are two examples of stopping myself out literally on the lows of the day.

Tesla

The first is Tesla. This is a Canadian ADR to trade Tesla in Canadian dollars. Chart shape is almost the same as the US chart.

Day 1: I bought Tesla at the black arrows. It closed below my entry, a small loss.

Day 2: I was in a loss position most of the day, as the other stocks I bought on Monday trades started to work.

Day 3: Tesla pushed higher and made a doji.

Day 4: Thursday opened higher, tested lower, but closed near the open.

On Friday, Tesla announced price cuts, the stock dropped 4% on the open, and I was back in a loss position again, while other stocks were screaming higher. They announced they were cutting prices on their cars. My impatience wore thin. I sold Tesla within 2 cents of the low on the day and the stock rocketed higher.

A tough trade, as the stock is now up 50% from my entry. I can only blame myself, but it was a difficult trade to watch for the last two weeks.

AMD - Advanced Micro Devices

The second trade I took after I sold Tesla was AMD.

Day 1, I bought it on the following Monday, as the stock made a new high, and the stock closed flat on my entry.

Day 2 was an outside bar, and price closed back in the middle of the range.

Day 3, the stock tested higher, closed lower on the lows of the day.

Day 4, the stock gapped down to start the day; I was down 6%, I sold at the red arrows at the low of the day.

Meanwhile, other trades I had were racing higher. Tough looking in the rear view mirror, but trading yesterday's chart is always more informative when you know the outcome.

Lessons Learned:

TSLA: I had no reason to exit, other than I was tired of watching the stock sit in the red as other trades were racing higher. How much time is enough? Good question. One week? As the market went higher, I expected a big name stock to move. Patience.

AMD: The stock hit my stop loss, even as all my indicators were telling me to be long this market. NVDA was shooting higher, and I was losing money in AMD. I sold on the 4-day low. When you use stops, you are going to get kicked out of good trades. That's just a fact. It stung that it was the second trade to go negative early in the rally. I would like to think it was discipline, but I need to be more forgiving, as an uptrend is starting as the volatility is still high.

One positive is that the strength indexes we use at ospreystrategic.org helped me be long the market in a timely fashion. Unfortunately, my management of the trades could have been better in both cases if I had another day of patience. I don't use hard stops, as I have been whipsawed like the folks that had the wild swings on the NYSE recently.

There is always another train, and I am moving on. But the sting of missing the big swing, ouch.

Hopefully, this lesson can help a few others, but there are two more for my notebook. I have had more lessons since those trades as well. The market will always keep us humble at some point.