Yesterday I posted my worst trade of the year and what I learned. Today I will wrap up 2013 by sharing my best trade of the year.
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 Analyzer tool. The search I did here was simply scanning to find all trades that had a gain of more than +$1000 then sorting by Return $.
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).
My best trade of the year was Astex Pharmaceuticals (ASTX).
The stock was a biotech and had setup a very clean cup and handle pattern. I purchased the stock on its breakout day, $7 even, and ran a very tight Stop on it, $6.89. In my mind the stock was going to either breakout and run or fail. In this case, I was in for a real surprise.
The stock trended horizontally into the early afternoon and volume dropped off. Then out of nowhere at just after 1 PM the stock shot up to nearly $7.80 (+11%) and trade was halted. Rumor news had broke that the company was being bought out.
I don’t have a Bloomberg terminal so I had to wait for Benzinga to pick it up, which pegged a $900 million price tag which valued the stock at $9 – $9.50. However, it was unverified.
So, as soon as the stock re-opened for trade I watched it closely and sold within the first minute at $9 a share. This locked me in a +$2,000 (+28.57%) winner. In Van Tharp R terms, a +18.2R winner (also my best of the year).
Selling quick ended up being the right call as the news was eventually verified, however the price tag pegged the stock in the mid $8s instead of the low $9s.
Unfortunately this trade took place before the new STTG Trade Log tool had been created, so all my notes are on the charts themselves. I say unfortunately because text on an image is not searchable.
Goal for 2014, go back and write all my past trade notes into STTG Trade Log so they can be searched!
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. The rest are my own personal uploads. Click any chart to view full size.
Summary Key Points:
Discipline had paid off here as I followed my rules and was rewarded. No mistakes to report.
With a clear set of rules to follow, trading can be more of an automated, unemotional experience. This is the ultimate goal, and if you talk to those who have become extremely successful, they have a very strict strategy and follow rules to the T.
This strategy has panned out well for me this year. My current fault comes with a lack of discipline trading other strategies and the constant battles within my own mind.
Pats on the back:
- I kept the stock on my close watch list and never removed it. On the day of the trade, I was already ready to purchase the stock if it broke out (unlike my biggest loser this year, having time to dedicate to trading makes a huge difference).
- I took the trade, immediately placing a stop to manage risk.
- After the news broke, I stayed calm, researched what I could, decided on a course of action, and sold without emotion to lock in the winner. Discipline.
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 success. Furthermore, I hope the process I use to analyze the trade can help inspire you to do the same.
If you’d like to give our new STTG community inspired Trade Tools a whirl, I definitely recommend them. They are free to use with an upgraded version available for $9.99 per month.
Have a safe and wonderful New Year’s Celebration!