introduction
Hello, dear readers and fellow traders! Today, I’m embarking on a comedic journey through the world of trading, specifically focusing on one of the most hotly debated tools in our arsenal: the tight stop-loss. Is it the financial safeguard we’re led to believe, or just a practical joke waiting to spring? Let’s dissect why a tight stop-loss isn’t always the superhero we hope it will be, especially when it comes to bouncing back from key moving averages.
The Perilous Plunge and Majestic Bounce
Imagine setting up the perfect trade. You’ve identified a stock that’s practically screaming “buy me!” You get in, setting a stop-loss so tight, it would make a drum skin jealous, believing you’re protecting your hard-earned cash.
Then, as if on cue, the stock takes a minor dip, triggers your stop-loss, and you’re out. But here’s the punchline: moments later, it rebounds from the key moving average like a cat with its tail on fire, climbing to heights unseen. And where are you? Kicked to the curb, watching the success parade pass you by, all because of your overzealous stop-loss.
My Personal Comedy Show with GOOGL
Let me take you back to a time not so long ago, December 2023, to be precise. I had my sights set on GOOGL, a stock that was flirting with a buy zone as if it was the stock market’s prom night. I entered the trade at $141.51, setting a stop-loss at $131.86, thinking I was the epitome of risk management.
Fast forward to January 2024, and GOOGL decides to test my resolve by dipping just enough to hit my stop-loss, only to soar back up in a glorious rebound. There I was, not so proudly watching from the sidelines, nursing my financial wounds, and mourning what could have been a profitable relationship. My tight stop-loss, intended as a protective measure, ended up being the very reason I missed out on the rebound party.
So, What’s the Takeaway?
This little adventure taught me a valuable lesson: while a tight stop-loss can shield you from dramatic losses, it can also prematurely end trades that were just about to turn the corner. Stocks, like a good drama, often have twists and turns; they may dip below a moving average only to gather their strength and leap to new heights.
- The key moving average is not just a line on a chart; it’s a potential trampoline for prices.
- Giving your trade more room might save you from the heartbreak of missing out on a significant rebound.
trade details at glancing
opening
- Underlying: GOOGL
- Date of Opening: 22 Dec 2023
- Underlying Price at Opening: $141.51
- Stop Loss: $131.86
- Profit Target: $170.44
- Market Outlook at Opening: Confirmed uptrend
- RS Rating: 85
- Position Risk, %: 6.77%
- Position Risk to NL, %: 0.43%
- Potential Profit (Position), %: 20.30%
- Risk to Reward Ratio: 0.33
- Position Size, %: 6.35%
- Reason for Opening the Trade: Price was in a buy zone, breaking into the zone with strong volume, following the CAN SLIM strategy or a similar technical indicator such as EMA 21.
- Was It an Ideal Buy?: YES. “Profit target: at least 20%. Stop loss: maximum 7%.”
- Remarks at Opening:
closing
- Date of Closing: 8 Jan 2024
- Closing Price: $137.01
- Market Outlook at Closing: Confirmed uptrend
- RS Rating at Closing: 82
- RS Change: -3
- Remarks at Closing: Price fell below EMA-21. RS line in downtrend.
- What Went Well?: Loss was minimized by vigilant monitoring of the stock.
- Cause of Error/Improvement: An example of purchasing the stock at the right time and place but selling it too early.
- Lessons Learned: When buying at the right time and place, allow stop-losses to be set farther from the purchase price to avoid premature exits; the stock price eventually bounced back up.
- Position ROI, %: -4.56%
- Position ROI (Portfolio), %: -0.29%
- Position Open Time (Trading Days): 9 days
- Position Open Time (Days): 17 days
Embracing the Market’s Mood Swings
Stocks have moods; they can be unpredictable, sometimes taking a momentary dive for no apparent reason, only to rebound with vigor. By setting a stop-loss that’s a bit more lenient, you allow for these mood swings, potentially keeping you in the game for those sweet rebound gains.
In wrapping up, remember my saga with GOOGL as a cautionary tale. Next time you’re setting that stop-loss, think about the potential rebound. Aim for a strategy that safeguards your investment while still letting your stocks show their true colors. After all, the goal is to be in the room when the party starts, not watching from the window outside.
Happy trading, everyone! May your trades be profitable, and your stop-losses forgiving. Let’s laugh all the way to the bank!
