This morning I highlighted AIG in our Stocks In Play call before the Open. I discussed a great short entry based on the premarket price action. AIG had been trending down for over a week since it failed above 50. In today’s premarket it was below 39.80 which was the price it rallied from on September 21st. In the premarket it dropped from 39.50 to 38 where it held the bid. I suggested that if it popped to the 39.50 area on the Open it would be a good entry for a short.
The market opened and AIG popped to 39.46. I was offering 800 shares at 39.45 on ARCA. I didn’t receive an execution and watched it quickly trade down to 38. I got long at this price based on the premarket buying. The 38 bid got hit aggressively and I hit out of my stock. When it failed to break down and rebid I bought it back at 38. Then it decided to collapse to 37 in about one minute. Ripper!!
After it failed above 37.50 I shorted aggressively into the next down move. The next major support level was 36 and I thought based on the premarket weakness and the heavy selling on the Open that 36 was a realistic target. During the next several minutes it became pretty clear that my short was not a good position so I covered for a 30 cent loss. AIG began to hold above 37.50 and large offers were being cleared aggressively so I changed my bias to the long side. If that had been my final trading decision of the day it would have been a great day.
Unfortunately, when AIG failed to lift 39 I got short again. I shorted more below 38.65. The bid wouldn’t drop 38.60 and I had a chance to cover. The tape was indicating the stock was a long but I decided to wait to cover until th 39 offer lifted. Huge mistake! When the 39 offer lifted the stock was instantaneously at 39.30. Another large rip! But that was nothing in comparison to the rip I took when I hit the 39.30 bid and the stock popped to 40.70 in the next three minutes.
I managed to cover most of my position on a pullback to the 40.30 area but couldn’t get long as I was beyond my self imposed daily stop loss limit. What was particular silly about not getting flat at that point was that if I hadn’t been short I would have been looking to get long at 40.30 based on the tape. Instead I covered into the next vicious up move. A waste of 500 dollars.
I got up from the desk at that point and went into my office. Had some water and an energy bar and thought about what had transpired. Not getting the initial short execution on the Open affected my judgment and caused me to trade to aggressively at the morning lows. If I had been short for the 2.5 point down move on the Open there is no way I would have been aggressively shorting at 37.30. I would have been looking to short into a pop. I reflected on the price action in the stock during the first hour and concluded that AIG would probably trade higher and probably touch 43 which was the price it broke down from yesterday.
I sat down at my trading station and got long at 40.70. But when it couldn’t trade above 41.50 got flat. I then shorted again when it dropped 41. It quickly traded higher and I covered. I got long again on the break above 41.50 and it traded up to 42. When it finally broke above 42 I got long more stock. I attempted to take a sale at 42.34 because yesterday it failedat 42.40 in the afternoon. As soon as I tried to get a sale at 42.34 it began a down move to 41.50. Instead of hitting the bids when 42.25 dropped I continued to offer my stock for sale. I finally gave up and hit out of my position at 41.60. Huge Ripper!!!
The error was compounded by my getting short when it began to tick down again. Talk about a stupid idea. The stock had broken out from 41.50. It was a good place for a possible entry on the long side. But because I was so exasperated by the failed breakout above 42 I made another rookie mistake. In the meantime Gman was eating his lunch and just holding his long until the stock reached his 43 target or broke the intraday uptrend. I finally covered my short above 42 and called it a day.
As I write this blog AIG is hitting the 43 price target I had established for it when I got long at 40.70. As professional traders we need to constantly take our emotional temperature and have a good understanding of our current energy level. Both of these factors may be determinative in how we execute on any given day. Although AIG presented several great opportunities today to make money I was in not physically or mentally prepared to take advantage of them. I overreacted emotionally when I missed my initial short at 9:31 and was too tired to recognize that once it had exploded to the upside from 39 that all short positions should have off the table until the next major longer term level which was 43.
Looking forward to getting some rest this weekend…and beating the crap out of AIG next week 🙂
Don’t forget to follow us on Twitter!
17 Comments on “Wow, That Was Some Bad Trading!”
Thanks for sharing. Sounds eerily similar to my day in several stocks. I still managed to make some small gains, but this market was brutal today. I just can’t seem to recognize the chop action and thus I continue to trade and get whipsawed on positions. Good luck next week. I’m certain you will rebound. Have a nice weekend.
Thanks for sharing. Sounds eerily similar to my day in several stocks. I still managed to make some small gains, but this market was brutal today. I just can’t seem to recognize the chop action and thus I continue to trade and get whipsawed on positions. Good luck next week. I’m certain you will rebound. Have a nice weekend.
The worst thing a trader can do is trade without a stop loss on the number of trades he takes in a day. Your brain gets wired to want to make it up and this clouds judgement.
I´ve found that using limit orders to enter half your position and timing the other half via the market is a good way to avoid the slip that triggers a cascade of increasingly deperate bids with no clear exit strategy.
The worst thing a trader can do is trade without a stop loss on the number of trades he takes in a day. Your brain gets wired to want to make it up and this clouds judgement.
I´ve found that using limit orders to enter half your position and timing the other half via the market is a good way to avoid the slip that triggers a cascade of increasingly deperate bids with no clear exit strategy.
steve, your daily stop loss is only $500? you must be incredibly consistent for that to be a “bad” day…
can you explain how the market opening -10pts impacted your bias towards shorting AIG or any other stock off the open?
it seems highly likely that a high beta stock like AIG would be a good candidate for day-traders to fade off the open, no? why did you have such a short bias?
i highly respect you as a trader and this was a great blog entry and would appreciate it if you could explain how the SP futures impact (or don’t impact) how you trade your individual stocks.
steve, your daily stop loss is only $500? you must be incredibly consistent for that to be a “bad” day…
can you explain how the market opening -10pts impacted your bias towards shorting AIG or any other stock off the open?
it seems highly likely that a high beta stock like AIG would be a good candidate for day-traders to fade off the open, no? why did you have such a short bias?
i highly respect you as a trader and this was a great blog entry and would appreciate it if you could explain how the SP futures impact (or don’t impact) how you trade your individual stocks.
many thanks for posting that. it really helps those of us trying to get started in the biz to know that even experienced traders can get on the wrong side occasionally.
the market seemed abnormally choppy this week. could it be dueling algo bots?
many thanks for posting that. it really helps those of us trying to get started in the biz to know that even experienced traders can get on the wrong side occasionally.
the market seemed abnormally choppy this week. could it be dueling algo bots?
Jeff,
The $500 loss was referring to how much it cost me not covering on the pullback to 40.30. unfortunately the total loss was much higher.
The market opening down wasn’t as important to me as the fact that AIG was trading below a longer term support of 39.80. The next major support level was 36.
I did in fact attempt to fade the first move on the open as it popped up to 39.46 before it dropped 2.5pts over the next few minutes.
One of the most common errors i’ve found in those I have interviewed and spoken to over the years is the idea that stocks with large gaps should be faded on the open. If you do a search of our blog you will find that I have discussed previously the correct way to trade stocks intraday that have large gaps.
Steve
steve, thanks for posting this! i’m rooting for you on monday… let us know how it goes!
steve, thanks for posting this! i’m rooting for you on monday… let us know how it goes!
Steve,
May I ask a question which is of much interest to me. Are you purely an order book oriented trader i.e purely tick-trade based or do you refer to charts as well( say of 10seconds or 30seconds)
Soham
Steve,
May I ask a question which is of much interest to me. Are you purely an order book oriented trader i.e purely tick-trade based or do you refer to charts as well( say of 10seconds or 30seconds)
Soham
Hey Steve
Good post, thank you …. i dont know how many times ive seen that trend and said were probably going to get an awsome close and had no idea how to trade it ….keep long until it breaks the trend or takes your target as stated.
Hey Steve
Good post, thank you …. i dont know how many times ive seen that trend and said were probably going to get an awsome close and had no idea how to trade it ….keep long until it breaks the trend or takes your target as stated.
I greatly appreciate this post. Most traders with blogs only post their winners, which is unfortunate because everybody knows they have losers they aren’t sharing, and quite frankly new traders could benefit just as much from seeing the losers.
I greatly appreciate this post. Most traders with blogs only post their winners, which is unfortunate because everybody knows they have losers they aren’t sharing, and quite frankly new traders could benefit just as much from seeing the losers.