Hey Mike And Steve,

I had a question for you guys about risk and how you guys manage it psychologically. For some reason, when trading on my Lightspeed Platform, my risk tolerance shrinks, and I punch out of stocks way to early or cannot sit through pullbacks when a stock goes negative on me. I get nervous it will just fall out of bed and I punch out and dont give it enough room to breathe. This ends up not only costing me in terms of lost trades but also costing me big time in terms of missed trades. This is even with a basic 100 share lot. I sometimes/occasionally do 200 shares and have only done 300 shares a few times.

This actually happened to me today and cost me big time with $RIG. I got in at 67.05 at I knew that if it failed to hold 67 I would punch out. So what happened is that they dropped 67 real quick and once I saw that I hit the sweep key. Got filled at 69.99. Wuss or what?

I knew there was a good possibility this would happen to me in lightspeed so I went long in my swing account at 67 (average price) also (still long and strong–thinking this has 70+ soon).

I have attached the chart and labeled where I got in and punched out.

My question is, how can I work on this so I do NOT punch out to early? And how should I determine how much room to give a stock? Is it if it is more in play, the tighter the stop is and vice-versa?

(By the way when I read One Good Trade, I was amazed that some traders were able to sit through stocks pulling back on them 1+ points. I could never do that let alone add to a losing position. Guess its personality huh?)

Bella Responds

1) I love how you followed your plan.

2) I love how found an awesome RIG level.

3) You found a great stock.

4) Awesome post-trade review

When you set a stop and then get stopped out this is not an example of being a wuss.  Now you may have incorrectly determined your stop.  You may not have given it enough room for this play.  And this you can evaluate after the Close.

If you love a level, you see huge upside for the stock, it has a history of above/below around the whole numbers, you might give yourself a bigger stop.  Perhaps 89c, perhaps 74c if you really loved the play and it offered tremendous upside.  Think of a risk/reward rule of 5×1 when you are developing as a trader.  If you give a stock 30c of downside then it should have $1.50 target  of upside.  If you give a stock 6c of downside like you did, then you are only expecting a move to 67.35ish.

I suspect you were in for a bigger move, really liked this play and thought it had $1.50 of upside.  If this is the case then you could have considered a bigger stop.

Great stuff working on your game.  That is important.  The result of one trade is insigificant.  But your post-trade analysis is here is what really matters.  Well done!

Mike Bellafiore

Author, One Good Trade