Clear Trades

I bought 300 shares of Bank of America (BAC) at 5.60 per share this morning.

I set a stop loss order at 5.32. The reason for this stop loss is to limit my potential loss to 2% of my trading capital.

I don’t have a clear plan for when to sell, which is a problem, but I’ll probably begin looking to sell at 5.80 and/or simply continue to raise my stop order if the chart continues to look positive today.

Below is today’s chart up to the point that I entered my trade (the green arrow at 11:44 AM). You can see this doesn’t look like a very positive time to buy, but I expected some support around 5.60.

Below is a 5 day, 15 minute chart of BAC. Again, note the green arrow as the point I entered this trade. I was looking for the pullback to the moving average and expecting the trend to continue up. Obviously, I’m not a technical analyst, but I’m learning and these are my basic thoughts as of now. Of course, I also have in mind the general positive trend for financials this week and even more so today.

BAC, Buy

I got scared and got out of my BAC trade much too quickly.

I actually got a margin maintenance call after I bought this. Apparently I wasn’t paying close enough attention to my ‘buying power’ and over extended myself. I could have held on for more gains of course, but I really just wanted to get out with a small profit while I could and avoid having to add more cash to my account to cover the margin.

Realized a gain of $27.59, for a return of 1.69%.

BAC, Gains, Sell

This was a quick buy that I made while watching the Bernanke hearing on CNBC. The bank stress test sounded a lot less ominous than I believe was previously thought. That made me think BAC would be good for a quick trade.

BAC, Buy

My Weekly Realized Returns Report is a way for me to check my progress and see how I’m doing in terms of real dollars. After all, those are the ones that count!

For the week of Feb 16 – 20 I had a total realized loss of -$1,103.56. This loss was a result of me cutting my losers and moving my money to what I think will provide me a better chance to earn this money back.

This brings my all-time (since January 28, 2009) realized return to -$850.92.

For purposes of this report, realized means the actual net dollars of closed positions, after commissions have been subtracted

Weekly Report

After realizing lots of losses, this is my hope for salvation. At 2.01 per share this just looks too cheap too me and I think we are closer to getting good news in the Financial sector than we are more bad news.

This purchase gives me a total of 2,350 shares of UYG at an average price per share of 2.30.

Buy, UYG

Cutting more losers…I was completely wrong when I bought this one. I paid 6.57 per share.

Realized a loss of -$177.51, for a return of -17.89%.

BCS, Losses, Sell

Another dumb buy, taking my losses on this one before it gets worse. I bought my 200 shares at an average price of 10.99 per share.

Realized a loss of -$372.02, for a return of -16.87%.

GE, Losses, Sell

Cutting more losses here. I bought my 200 shares at an average price of 21.35.

Realized a loss of -$554.03, for a return of -12.94%.

Losses, Sell, SSO

I finally took my losses on this one and let it go. I should have cut the cord much sooner, but I kept hanging on.

I bought 250 shares of AA (Alcoa) on Feb 2, 2008 at 7.8775 per share. I’m sure I could hold this for a while and see a better recovery—obviously I’m not a fan of selling at what may very well prove to be the market bottom, but I wanted to buy UYG instead and I expect to see enough gains with that to make up for this loss.

Realized a loss of $470.90, for a return of -23.83%.

Update: On February 25th, I received a dividend of $42.50 for my Alcoa shares. This changes my loss on the stock to $428.40, for a return of -21.68%.

AA, Losses, Sell

I’m currently reading Come Into My Trading Room: A Complete Guide to Trading, by Alexander Elder. So far I love the book, but it’s too early for a definite recommendation.

Just a few pages into the book, there is an excellent piece on trading that really got me thinking about my recent experience. This section is in the context of talking about men and women as traders and what the differences tend to be.

A guy studies his charts, decides to buy, and now his self-esteem is involved—he has to be right! If the market goes his way, he waits to be proven even more right—bigger is better. If the market goes against him, he is tough enough to stand the pain and waits for the market to reverse and prove him right—while it grinds down his account.

This immediately made me think of my recent trades in Bank of America. Only a few days after I bought BAC I was looking at an impressive gain, up more than 30%. As the stock was rising, I was thinking just like the above quote said I would. The gains I had were nice, but I started thinking about how great they could be and what I would do if I was able to sell at this level or that level. I was feeling validated, like I was the brilliant investor who saw an opportunity and grabbed it. I think I got all the more caught up in it because BAC fell for the first two days after I owned it, by the way, demonstrating the other problem outlined in the quote—taking the pain and waiting.

In the end, I missed out on a lot of gains in BAC, though I still came out of it with a decent trade. The stock topped 7.00 shortly after I bought it at an average price of 5.15. I ended up selling at 5.77. I easily left $600 – $800 on the table, ending up with a gain of $480. This is on a $3,500 position. Remember, I’m not complaining—I’m just trying to learn from every trade I make.

I recall thinking to myself that I should set a stop-loss order at 6.15, this was when the stock was in the upper 6s. 6.15 was an arbitrary point, but it would have been better than not having a stop-loss at all proved to be. I want to be sure to use stop-loss orders in the future to prevent any winning trades from becoming losers. I haven’t made a specific rule yet, but I’m thinking that once I’ve topped a 5% or 10% gain I should set a stop-loss no matter what.

The lesson learned is that I have far too much emotional involvement in my trading and I need to work to become much more rational and disciplined. I like to think that I do a good job of removing emotion from my decision making, and while that may be true on a relative basis, I clearly have a long way to go to become a disciplined trader.

Books, Lessons Learned