Reviewing Old Charts (AKA… "I can't believe I held the trade past that stop loss")

I highly recommend keeping ALL your old trading charts and journal notes.

They're great to review each now and then.

Not only do they offer educational value but they also offer a source of motivation in allowing you to see the incredible progress you've made, as well as a source of amusement at how you could have been so naive. 🙂

I would have bet good money on the fact that I'd NEVER consciously made a decision to hold a trade beyond the initial stop loss. I certainly don't ever remember doing so; and was aware of the concept of risk management at the start of trading as it's a fundamental part of a prior career.

And so, on Tuesday as I was flicking through some old folders of trade data and chart printouts, I was incredibly surprised to find a trade which I held past the stop.

It was early 2003 and I was trading Aussie stocks. In this case it was Croesus Mining (CRS). The strategy at the time was one of identifying a strongly trending market and buying after a pullback followed by evidence of continuation. I was operating from the LONG side only, as do most stock traders. This may have been a good idea had the market as a whole been trending upwards, but early 2003 was the latter stages of the several year bear market. As such, the strategy produced a disappointing mix of winners and losers for approximate breakeven results overall. Perhaps this would have come good if I'd continued into the following several years of bull market; but that wasn't to be. In the months following this trade I made the transition to options in order to allow easier access to both long and short directional plays. This also involved a variation in strategy.

Here's the CRS trade (Yeah, I really did use line charts at this time!  I didn't buy my first "real" trading platform till mid 2003.)

(Click on the image if you wish to open a larger copy in your browser window)

reviewing old trades

The buy was at $0.88 on 20th January. The stop loss was at $0.75. I don't have sufficient notes in my journal to explain the original reason for holding as price passed below $0.75 in early March, however a couple of days later I did rationalise this decision by saying I'd just hold out to see if there was a reversal on commencement of the Iraq War (20th March). That obviously didn't play out as expected and I eventually took a loss on the 24th March at $0.62.

A potential 13 cent stop ended up producing a 26 cent loss… double the original plan!!!

Errors (Strategy)

  • Failure to consider the importance of having a strategy that suits the current market environment. Trading long only during a bear market requires adjustment to the trade management approach to allow for the fact that you're operating against the general trend of the market. Or even better… learn to trade short!

Errors (Trade Management)

  • There is an obvious exit point (to at least scale out if not wanting to take a full loss) as support broke at approximately $0.83 in early February, and again as the next level of support broke at the original stop of $0.75 in early March.

  • Holding past the original stop resulted in double the pre-planned loss.

Errors (Mindset)

  • This trade shows a clear failure to completely pre-accept the loss. I can only assume the risk was greater than I was really willing to take, otherwise I should not have hesitated to exit at the pre-planned price.

  • Rationalisation of a breach of my trading plan. If there was potential for a rally after the 20th March invasion of Iraq then I should have exited at the original location and sought a re-entry when the new trade set up. The reality, although it escaped me at the time, was that I was seeking any external information that would validate my decision to hold past the stop, thereby relieving the uncomfortable feeling that comes from knowing you've violated a basic fundamental principle of good trading.

Errors (Journaling)

  • There is no documented reason for the violation of my stop price.

  • There is no documented record of my target price, or planned trailing stop. Obviously I was aware of it at the time… but it's not showing up in the records.

The main concern of course is the mindset issue. I had not accepted the risk and was clearly operating with an expectation of every trade being a winner, the exact opposite of my current beliefs as outlined in the recent article "Winning through Losing Better".

Just so you don't think I'm a total loser, let's balance this with a much nicer winning trade. Gunns (GNS) entered at $9.76 on 24th March, exited at $11.45 on 13th June.

(Click on the image if you wish to open a larger copy in your browser window)

reviewing old trades

It's amazing thinking back to those days. I'm surprised the overnight risk didn't kill me at the time. I used to wake each morning and turn on the news desperate to hear how the US market moved overnight; a mixture of fear as I dreaded hearing of a downwards close and excitement as I desperately hoped for a positive close.

Give me intraday trading any day!!!

Lesson: Keep ALL your old records. They're educational and they're fun to look through!

Lance Beggs

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