I lost money in BIDU today.  I was trading it strictly on the short side.  It opened at 137 and close at 131.  Wow, you must thinking that this guy really has no idea what the heck he is doing.  You might be right 🙂

Let’s review some of the things that caused me to lose money in it today and see if trading lessons can be gleaned.

1. After my initial short at 134 around 10:00AM failed to break down I waited to long to cover and was basically trapped in the large spike above 135
   • If you put on a position and it does not start to work fairly quickly within the time frame you are trading then take it off.  You may miss out on winners occasionally but you will be in a position to get back in if the market begins to move in your direction and avoid large losses
2. I underestimated how large of a retracement BIDU could have despite the fact that it has been very weak since it reported earnings a few weeks ago.
   • Generally, stocks are much more volatile on the way down than the way up.  Things are just kind of messy.  I remember in 2008 when I kept on trying to short LEH when it bounced from 25 to 40 and it went to 42 then 45 and then 47 before finally going bankrupt.  BIDU is probably going to drop at least to 120-122 but it will continue to have outsized retracements until it gets there
   • On a day that a stock is very weak on the Open make sure that after it has a large retracement it moves in a tight horizontal fashion in relation to its level of volatility.  This will minimize your risk and also the next down move should be fairly clean.
3. I was nonchalant about the entire trade.  Basically, I made two perfect trades on the Open in A and CREE getting long around their lows and catching their bounces so I had some PnL to “play with”.  It was definitely in the back of my mind that despite being very bearish on BIDU since the day after it reported that I was not capitalizing on my bias.  This really annoyed me so I figured why not take another stab at getting short since it was so weak right on the Open.
   • Don’t start screwing around because you made some money right on the Open. That is totally amateur hour.
   • This was also a subtle form of revenge trading.  Not that I had lost money in BIDU and was trying to make it back but that I felt that it “owed” me since my analysis had been proved correct since the day it collapsed through 146.50.  You should never have the mind frame the market “owes” you something.  Trading is speculation pure and simple.  It is your job to execute ideas in a disciplined and consistent manner and if you have skill you will make money otherwise you will be done.

That is enough trading reflection for now.  I need to go have an end of the week cerveza gmonkey style.  Spencer out.