Let's analyse a losing trade

I want to share with you a recent trade. A losing trade. (Always the best to learn from.) Not the technicals or the pattern per se. But the mindset and thinking when conducting a review. Here goes…

So, I’d set up a nice long thesis on Nasdaq. All looking pretty good. Not a grade A – but nice enough to take. The market was chopping around and I got long. Price must have been oscillating around my entry level for 20 minutes or so. Then it suddenly broke to new highs and looked like it was shifting gears.

“Great” I thought, let me just pull my stop up to cut it if this thing wicks and I’ll stagger limits to exit into new highs.

So that’s what I did, I staggered a bunch of limit sells around the recent high, to capture a stall and reverse but hopefully, a stop run-through highs. Then what happened? Yep, you guessed it.

A few seconds after I moved my stop, the price shuddered lower, pinged me out, and then proceeded to rip right up through even my most ambitious exit limit!

Grrr

The trader in me 15 years ago would have hated that. I would have probably tried to scalp it with size to get back “what was mine”. Yuk, I shudder to remember some of the stupid P&L holes I used to dig for myself. Luckily the 40-something-year-old trader today doesn’t play those games.

Is it annoying getting stopped like that?

Yes.

I took time to plan the trade, the thesis was good, all lined up, and I took a position. I am human, I’d much rather see a nice green blotter than red! But that’s trading. I made an active decision to move that stop. I wanted to protect against the choppiness. And when you gain on one side you often lose with the other. Moving the stop up, gave it a higher chance of being hit, but protecting against loss.

Was it the right thing to do? 

On a sample size of one. No.

I’d have done way better not moving it. What about every trade like that in future? That’s where the honest de-brief is important.

Let’s review:

What were my options?

1. Move the stop
2. Don’t move the stop

I have a rule. If the market doesn’t go right away, be cautious. I have a pretty good feel for the supply-demand shift and if I get that read wrong, I’m usually out of sync with the rhythm and the trade is almost a 50/50.

No good.

So I did what I always do if the trade doesn’t go my way quickly, de-risk it.

• Close the lot
• Close half
• Move the stop

The market was chopping about for ages, it could have so easily wicked lower taken my full stop and moved higher. Taking advantage of the noise to the upside by moving the stop was exactly the right thing to do. It didn’t work out this time, but if I take that exact trade 100 times, I’m sure that moving the stop will be the right thing.

As I type this out the market is nearly up 1% from my entry. And all I think of is how nice the action will be over the next few days now we’ve had this vol expansion. I may have lost this trade, but I’m so dialled in and ready for next week.