17th June 2014 –Day 7
A busy day with a client today so up early and looked at the markets over coffee. Not much happening, very low volatility and no gut feeling at all other than to do nothing. Not sure if this is the right thing to do but it’s what I feel so it’s what I do. I drop Nick a quick email to let him know and head off to collect my client. Don’t look at the markets again till lunchtime. The Dow has just dropped quite considerably from where it was this morning so I grab the chance and pop a trade on. I’m getting quite familiar with the platform now so it only takes a few seconds. Buy Dow at 16,748.5, close my laptop and back to work. Have a quick check on my iPhone mid afternoon and I’m up £130. I drop my client at the airport and notice a text from Nick asking if I’ve thought about moving my stop loss up a bit. I’ve not but I got caught on this yesterday so I’m hesitant, the market has moved quite a long way in my favor so I move it in half way, the most I can lose now is £50. By the time I get home the stop has been moved to break even and I’m feeling confident, two thirds of the way to target and it looks like I’ve captured almost the lowest point the Dow has been at all day. It drops back a bit in the evening but still well in profit and hoping for a good day again tomorrow.
Ali places his 7th trade today and it keeps going his way so I suggest he moves his stop loss, first to half it’s original level then, as his trade edges towards 80% of its target, I suggest he moves it to his entry level so at worst it’s a break even trade. I hear in Ali’s voice that he’s till somewhat unconvinced by this, given his experience yesterday, but he’s a great student so he does it anyway. I reiterate “Ali it simply makes no sense to watch a trade that is now up £240 go all the way back to down £100” The aim of the game is staking the odds our favor and minimizing loses.
18th June 2014 – Day 8
Up early again and check on my phone, in profit £190 on my live trade, still not at take profit but all is good, it’s bouncing around a bit but I’m hoping it’s going up. Busy day today so what will happen will happen and I’ll leave it alone and see. The trading platform should send me an email when I reach take profit so there’s nothing I need to do but wait and see and keep my fingers crossed today. The market is quite quiet today but there’s an announcement coming from the American central bank later which might shake things up. Ok shake things up is an understatement, in short, something was said and the market dropped, something else was said and the market shot up! Only problem is that having moved my stop loss I may well have had a ‘free’ trade going into the announcement but it kicked me out just the same AND I learned something new, the market does not necessarily trade at every single point. When it jumps Nick call this ‘gaping’ and here it gaped and so my stop loss triggered at the next trade level down and so even though I had it set to zero it cost me £29.40. The market then rallied to an almost all time high… if I had left the stop loss alone I would again have been well in the money. But that’s not the rules, the rules say place your trade, next step, seek to reduce your risk by moving your stop loss, next step, take profit. It makes perfect sense but I can’t help feeling a little hard done by tonight. I’m still in profit but not by as much as I feel I should be. Three trades left so I immediately place a sell trade with the thought that the market will fall, it continues to rise and I’m taken out of that trade very quickly on my stop loss… ah well, time to call it a day and go to bed. New day tomorrow!
Another good learning day today, Ali was taken out of his long Dow position after an announcement from the Governor of the Federal Reserve Bank in the US. However, rather than being taken out at his break even order level the market gapped to about 10 points below that level before bouncing all the way back to where it was just a few seconds before. Ali was naturally frustrated; a trade sitting with a nice profit was cut with a small loss before the market headed back to where it was before where Ali would have had a nice profit. To add insult to injury, what should have been a break even trade ended in a small loss and then the market headed up up and away and Ali would have hit his original target had he still been in the trade. I explained that markets don’t necessarily trade every point between A and B, particularly over ‘big events’ such as announcements, I call this ‘gaping’. Ali cursed his stop loss believing that if he hadn’t moved it he would still have been in the trade and so would have hit his target and had his 3rd winning trade and secured our experiment.
The problem with Ali’s thinking here is it’s purely based on hindsight. Moving the stop was 100% the right thing to do when he did it, what happens after is irrelevant. There’s no place in trading for hindsight and predictions. With this example yes, with hindsight, the stop loss worked against him but what about the other occasions when it saved him from a bigger loss such as his cable trade when he was stopped out yet the market kept going up significantly further, Ali never even remembered it. Trade management and limiting losses is the single most important part of trading, your stop loss is your best friend.
3 trades left, £210 up with only 2 winning trades from the 7 completed.
