Introduction
Investing in the stock market is a dynamic endeavor, filled with highs and lows that require a keen eye for detail and a willingness to learn from every trade. In this blog post, we delve into a recent investment in IBKR, examining the buy and sell decisions made during this particular trade, and the valuable lessons that can be drawn from it.
On September 1st, 2023, a buy decision was made at a price of $91.16, with a carefully placed stop-loss at $88.36 and a profit target set at $109.39. The RS rating stood at 87, suggesting relative strength in the stock, and the market outlook confirmed an uptrend. With a price multiplier indicating that the stock was not excessively extended, it seemed like an ideal buy. The position risk was calculated at 3.04%, with a minimal position risk to Net Liq of 0.12%. So, what went right with this trade?
This blog post will analyze the key factors that contributed to the initial decision to buy, as well as the eventual decision to sell on September 18th, 2023, at a price of $90.61. The market outlook had shifted to “uptrend under pressure,” and the RS rating remained strong at 90, indicating the stock’s relative resilience. However, the decision to close the position was prompted by the stock falling below the EMA 21 with high volume, resulting in a profit of -2.57% and a profit per portfolio of -0.10% after just 10 trading days.
We will dissect the trade, highlighting the strengths, improvements, and overall remarks. Notably, the stop-loss was strategically placed, the entry point was well-timed, and the position risk was kept at a minimum. Nevertheless, there were areas for improvement, such as the need to sell earlier due to price volatility and the stock’s decline below EMA 21.
This blog post aims to provide insight into the thought process of a diligent trader, one who constantly evaluates their decisions and seeks to learn from each trade. The author shares their philosophy of focusing on factors within their control, acknowledging that not all ideal buys will yield positive results, especially in a market where trends can change swiftly. Join us as we dissect this IBKR investment and extract valuable lessons that can be applied to future trades.
Buy: September 1, 2023
- Price: $91.16
- Stop-loss: $88.36
- Profit target: $109.39
- RS rating: 87
- Price multiplier: The price of the stock was 1.3 higher than the lowest point at the previous base. 1.3 is less than 2. So, the price didn’t seem to be extended.
- Market outlook: Confirmed uptrend.
- Position risk: 3.04%
- Position risk to Net Liq: 0.12%
- Reason for buying: Price was in the buy zone. Volatility had been contracted. Price was close to EMA 21. Low risk trade.
Sell: September 18, 2023
- Price: $90.61
- Market outlook: Uptrend under pressure
- RS rating: 90. Notice! The price of the stock had fallen but RS rating had risen. This means that the stock was stronger than the market and many other stocks.
- Reason for closing: I closed because the price had fallen below EMA 21 with high volume and it kept declining.
- Profit: -2.57%
- Profit per portfolio: -0.10%
- Position open time: 10 trading days
What Went Well?
- Stop-loss: Placed below main fluctuation areas.
- Timing: Bought at the right time – not too far from EMA 21 on the way up.
- Selling decision: Sold when the stock fell below EMA 21 before stop-loss trigger.
- Risk management: Position risk to Net Liq was chosen very low.
Improvement Points
- Earlier Sale: I should have sold earlier – price was volatile and it was a second day below EMA 21.
Overall Remarks
- Decision to Close: Closed because the price fell below EMA 21 with high volume and kept declining.
- Risk Assessment: This was a very low risk trade.
I am trying to learn new lessons for each and every trade. I am always asking myself such questions as ‘Why did I open at this point?’, ‘Was it an ideal buy?’ After closing the position I ask myself ‘What went well?’, ‘What can I improve?’, ‘Cause of error?’ Also, I add a lot of remarks when opening and closing.
A note to point out here is that I am trying to answer myself in a form that is under my control. Things that I couldn’t change that cause me a loss are not my errors or learning points (e.g., market direction turning worse).
Also, things that happen after selling a stock are not my errors or learning points. For example, when I sell and the stock declines further, I wouldn’t consider myself as a smart guy or an oracle. I wouldn’t know what the price will be. And vice versa, I am training not to feel guilty when the price turns upward and I have been stopped out.
Things that are under my control are for example things that I could or should have taken into account such as volatile price action in the latest base, buying when price was too extended, not selling quickly enough and so on. Right now I am training myself to put price alerts for the stocks that I have been stopped out. The reason is that I would like to get back in when the price starts advancing again. This is one of my main errors – I tend to miss out on the good stocks that I had bought at the wrong moment.
This trade was an example of the case that an uptrend market turned down and my seemingly ideal trade came out as a loss. This could not be interpreted as my error. Ideal buys don’t always work out. When the market turns south, 75% of the stocks tend to follow.
Conclusion
In the world of stock market investing, every trade presents an opportunity to learn and refine one’s strategy. The IBKR investment analyzed in this blog post serves as a valuable case study in making informed decisions, managing risk, and adapting to changing market conditions.
As we reflect on this trade, it becomes evident that while certain aspects went well, there is always room for improvement. Placing the stop-loss below key fluctuation areas and entering the market at an opportune time near EMA 21 were sound decisions. However, the lesson here lies in the need to act swiftly when faced with price volatility, as selling earlier could have mitigated losses.
The commitment to learning from each trade, evident in the meticulous self-assessment and constant questioning, is a hallmark of a dedicated trader. Focusing on factors within one’s control, such as avoiding overextended purchases and promptly addressing volatile price action, can lead to better decision-making and risk management.
It’s important to recognize that not all ideal buys will result in profits. Market dynamics can change rapidly, impacting even the most well-informed decisions. As investors, we must maintain a rational perspective, understanding that we cannot predict every market shift or price movement. Acknowledging this reality can help alleviate the emotional burden of hindsight.
In the end, the IBKR trade is a testament to the ever-evolving nature of the stock market. Learning from both successes and setbacks is the path to becoming a more astute and resilient trader. With each trade, we gain experience and insight, ultimately working towards our goal of achieving consistent and profitable outcomes.
So, as we close the chapter on this particular trade, let it serve as a reminder that in the world of investing, adaptability, and continuous learning are the keys to success. By embracing the lessons from our trades, we position ourselves for greater confidence and competence in navigating the complex and ever-changing landscape of the stock market.
