The year end is all about reflecting back on past trades to learn from the winners and losers alike. With proper trade analysis techniques this is a fairly painless process (unless you have trouble leaving your ego at the door).
To find my best and worst trades, alongside analyzing my trades to identify poor habits that need to be corrected, I am using the latest version of the STTG Trade Journal. The search I did here was simply scanning to find all trades that had a loss of more than -$500.
A quick note before getting into the trade. I trade for a hobby and only when time permits. While I can trade much larger stakes, throughout 2013 I stuck with small positions sizes typically averaging around $5,000 per trade risking no more than $100 – $200 on average per trade. Based on a $50,000 portfolio this equates to roughly .2 – .4% of capital risked per trade (usually you want this to be around 1% per trade and no more than 1.5% per trade).
So what was my worst trade of the year? It was Gogo Inc (GOGO), a company that provides in flight internet connectivity that went public in June 2013 and had a great run after breaking out in early November. The run was primarily attributed to the recent changes to cell phone and other electronic device usage during takeoff and landing.
I bought 200 shares of GOGO on December 17th at 10:15 AM for $30.64 a share. I set a physical stop loss order at $29.50. So, overall I was risking a tad over $200 on the trade.
Work has been crazy busy due to the StockBrokers.com 2014 Review and I had watched the entire runup in November and wanted to try and catch a rebound (discipline mistake #1). The stock had settled just under $30 with back to back inside trading range closes which is a common technical trading pattern. Without too much detail, you buy the break or sell the breakdown from the previous day’s range.
I missed the early morning breakout and decided to chase the stock (discipline mistake #2), grabbing my shares at $30.64 instead of the proper buy point $30.10, so 1.5% higher. The stock initially ran up to nearly $32.50 and closed back near the 10 MA at $30.74 which was not ideal but OK.
Then, after the close news broke that a large holder had sold its stake which subsequently caused the stock to tumble in post market trading. And, being so wrapped up in work, I naturally missed this, and my Stop was traded through.
The next morning the stock opened below $27.50, my Stop triggered, and I was sold out at $27.32, a -$664.96 (-10.85%) loss. In Van Tharp R terms, a -2.9R loser (also my worst of the year).
My actual trades notes are below. With the STTG Trade Log tool I can log notes with each individual buy or sell which really helps me to record my thoughts as the trades are made.
Here are the actual charts I have uploaded to my STTG account tied to the trade. The first chart is an automated chart from the new STTG tool that auto plots the buy and sell point for a quick trade overview.
Typically I markup a StockCharts.com chart or the MarketSmith charts and upload it but I didn’t do that here due to lack of time (another reason why I should have avoided the trade to begin with).
Mistakes Recap + Tweaks for Moving Forward
The last piece in the Post Trade Analysis process is summarizing the mistakes. Naturally your worst trade of the year is a great trade to conduct the exercise with!
- November uptrend was clearly broken as the stock had several heavy distribution days, broke its 10 day moving average, and fell back into its previous base. I had missed the big runup and was trying to play catchup. After reviewing numerous trades this year I’ve realized this is a habit that needs to be addressed. VERY IMPORTANT.
- I hadn’t traded in weeks and for a key reason, I’ve been too busy at work! I got emotional, not wanting to miss out on a potential rebound, and paid dearly for it as a result.
- Despite seeing the Dan Zanger note on post lockup expiration, I still took the trade. Post lockup expiration increases the risk factor significantly, a reason to avoid the trade completely. This is why the news caused such a significant gap down.
- I missed the proper entry target by 1.5% because I was not tracking the stock closely and was tied up at work. Sloppy.
Pats on the back:
- Before taking the trade, I correctly assessed the Risk (atleast from a numbers perspective) and had R determined.
- After taking the trade, I immediately placed a Stop Loss to protect myself.
- After the stock gapped down I immediately sold the stock, licked my wounds, and walked away. I did not buy more shares of a losing position or hold the shares with the “itl’ll come back” mentality.
This is an example of how I conduct post trade analysis. While this analysis was more in depth due to it being such a significant trade, the key concepts are ever present.
Hopefully you can relate to this trade and learn from my mistakes. Furthermore, I hope the process I use to analyze the trade can help inspire you to do the same.
Tomorrow for New Years Eve I will share my best trade of the year and the lessons learned. See you then!
UPDATE: Best trade of the year posted!