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Knowing When Not to Trade

May 16, 2011 3:54 PM ET
JasonGordon profile picture
JasonGordon's Blog
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Seeking Alpha Analyst Since 2009

My passion is trading stocks. I am a student of the markets just like you. Follow me as I learn new things and analyze the markets. http://www.swing-high.com

Last Monday was my first day-trading session of the summer. I made $200 and felt great about getting off to a good start. Tuesday, I was lucky to only lose what I lost.

A buddy from who lives in Pittsburgh (I live near Philadelphia) was home for that weekend, and Monday night was one of his last nights in town. Therefore, it felt appropriate to have a small party around a fire in his backyard where we drank and socialized until the wee hours of Tuesday morning. I finally got to sleep around 4 am on Tuesday morning; I woke up again to start my second day-trading session around 9:15 am.

Multiple factors were playing against me before I even started trading on Tuesday. Not only was I getting a late start to trading, but I was very tired from the night before. On top of that, I was probably a little over-confident because of my gains the day before. So began my trading day.

Almost immediately, I lost $100 by getting stopped out of two trades with $50 risked. Talk about a wake up call. By the time lunch rolled around, I was down somewhere in the neighborhood of $150 to $200. My positions were not moving in my favor, and for the most part they were not moving at all. So I made lunch and sat down on the couch in front of Bloomberg TV. My cat joined me on the couch and sat on my lap, and when the food coma set in, I dozed off. I dozed off with two positions totally approximately 1500 shares! (To make things worse, only one of these positions had a stop limit order in place. The other one was completely exposed to whatever movement the market decided to take.) This state of mind lasted for about half an hour, during which I woke up a couple of times and thought about closing out my positions and calling it a day. Instead, I continued the misery. I dropped one of my positions and continued to trade the other one a few more times. Every trade was poorly planned and miserably executed. The day ended and I lost about $330.

I learned some very important trading lessons that day. First, make sure you start off with the right mindset. If you are too drowsy, you are probably better off sleeping in a little and trying to trade the second half of the day. Make sure you have the ability to stay in the right mindset throughout the session. This means eating right, sleeping right, and not lounging on the couch (or getting too comfortable for that matter). Also, when trades are not working for you and you feel like you are wrong on every trade, it may be a confidence problem, or it may be that you are not seeing the market well. No matter what the case, that is probably a good time to flatten your intraday positions and walk away. Come back and review why the trades were not working once you are in a better state of mind. Finally, avoid over trading. Just because you went long and the equity has a sudden, sharp decline, does not mean it is time to short. Mental flexibility can be a virtue, but over trading is bound to hamper your profitability.

So I ended up paying a little bit of market tuition last Tuesday. It will probably prove to be worth it in the end.

Thanks for being a part of Swing-High.com! Always trade with a stop loss and manage your risk appropriately.

Happy Trading,


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