Trading Trail #28: Folded Too Soon?
Jan 3, 2012 at 2:40 pm in Mobile Trading by
When to hold and when to fold; that’s the problem facing poker players and spread bettors alike.
Do you remember from this article how I took a position in Afren because another well-known trader had published on his web site that he had taken a position? Well, the price went up as he expected, and both he and I cashed in at his target price of about 92p. I banked a profit of £13.10 on the £1-per-point position that I had established at 79p. So far, so good.
Rather than falling back, the price went ever higher such that I could have banked a profit of £20 (or more) later in the day. It seems I “folded” too soon when I should have “held” [sic]. A profit is a profit, but a £13 reward for my initial £10 risk is not as good as I should be aiming for. And I’m not really a “profit target” kind of guy.
Ideally my plan would have been to take a £2-per-point position initially, with a view to closing out £1-per-point at the top of the swing while leaving £1-per-point to ride higher — as I explained in my article Getting Into The Swing, Part 3. (Do you see how these “trading in real life” postings are meant to illustrate the theoretical points I make in other articles?)
Unfortunately, the public Trading Trail account that I’m documenting here could not sustain a £2-per-point position at the time, so I couldn’t execute my plan here, but I did take a second £1-per-point in a different account which (at the time of writing) I am letting ride higher as evidenced here:
What a pity that the extra profit won’t count in my public account, but c’est la vie, and it could easily fall back again. If it does, my new opening order could buy me in again towards the bottom of the trading range at 79p.
Post-Santa-Claus Rally?
The good news is that, having turned upwards to £628 in my last Trading Trail posting, the overall portfolio value added another £50 during the day today (3 Jan) thereby helping me further to close the gap on the FTSE performance. Maybe this is the start of the post-Santa-Claus rally that I’ve been hoping for? Time will tell, and there’s a long way to go.
Tony Loton is a private trader, and author of the book “Position Trading” (Second Edition) published by LOTONtech.
Tony,
Sorry for not picking up on this in your previous post but I’m just wondering why you decided to make the same trade as the other “well know” trader? Did you have your own reasons for making the trade or did you merely copy him? I’m not having a pop at you for doing it as I’ve tried it before myself in the past with little success. I just want to try and understand your thought process more.
Thanks,
Harry
Thanks for your comment, Harry.
I used his trade as a source of inspiration for my own trade. He brought Afren to my attention, so I looked at the chart and saw what he was trying to do. I applied a different stop level to suit my own “money management” criteria, and I intended to do my own swing + trend thing by cashing out half at his profit target and letting the other half ride. It’s a pity I closed at the top of the swing HERE and let it ride in the other account 😉
In a nutshell, there’s a difference between:
a) rushing out to buy a stock at any price because someone tipped it, and not have a plan for when it rises or falls.
and
b) taking a stock “idea” from someone else and forming your own trading idea, or copying there’s exactly ONLY if you can do so at the same good price.
I hope this answers your question,
Tony.