Speaking of Risk Takers…

This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com

Here’s something you will probably not see very often (with a few notable exceptions from the blogosphere)–A public admission of a humiliatingly bad trade. This morning, I traded Fremont General Corporation (NYSE: FMT). It was up strong in pre-market, and they had positive news of new credit being extended to them. I had no setup, I just wanted to buy the open and ride it up. I entered as FMT broke the pre-market high:

I sold by reflex based on it looking like it would go on to hit the pre-market low. I realized by then that I had made a mistake, but I wasn’t going to wait around, hoping for the loss to turn around. Ironically, that would have been the thing to do in this case :(

I made so many mistakes it’s almost laughable. Here they are, in no particular order:

1. I’ve been sick all week and not sleeping well—not a good time to be making decisions.
2. I ignored my 2% risk rule, and just put my whole buying power down for my position size—over 10x my normal R size!!
3. I didn’t have a clear stop point other than the pre-market low—I just bailed when it plunged down.
4. I wanted to hit a “home run” and get a good 10% on the one trade—I wanted something for nothing!
5. I wanted to trade today. I went looking for something to trade, rather than waiting for a setup to appear.
6. Zecco recently instituted a $2000 minimum rule for margin accounts. They hadn’t had any problem with a small balance before, but now they lock up my buying power every day, and I have to ask them to manually release it. Don’t ever trade with some kind of restriction in place like that! It locks down your options and messes with your mental state.
7. I told myself that I wouldn’t trade while I get a swing-trading system going, but I broke that promise and traded anyway.
8. I traded on options exp. Friday, breaking another of my rules.

So what now? I need to regroup. I’m taking the cash out of my Zecco account. I’m not exactly sure of where to go from here, but one thing’s for sure: I’m really disgusted at myself for doing this. At least it’s a big loss out of a small account, rather than a proportional chunk out of a more substantial account. I didn’t blow out my account, but a loss this large (about -15%) is completely unacceptable and entirely avoidable. It’s not so much the dollars involved as it is the percentages. I trade a small account on purpose, until I can be consistently profitable and weed out mistakes like this one.

I hope that by posting this trade, it reinforces to me not to do this again!, and that it can serve as a warning to others. Like Phantom of the Pits says, the most important part of trading is behavior modification–without that, you will lose, just like I did today.

Trade Summary:

FMT Long 280 Shares
Entry: $9.35, Stop: $8.37, Target: $12.00
R: $274.40, Exit: $8.64
P/L: -0.72R, or ($198.80)

Stocks Mentioned In This Article
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This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com