Should You Stick With A Losing Trade? My Answer May Surprise You
Stick With A Loser?
"Cut your losses short" is an old Wall Street adage. Therefore,
should you exit an unprofitable trade? Well, it depends. I believe that as long
as the stock is trading within its normal volatility, then you should
stick with the position until either it moves in your favor or until your
protective stop is hit. Why? Because the market doesn’t always adhere to our
schedule. Moves often take time to develop.
Let’s take a look at Occidental Petroleum
(
OXY |
Quote |
Chart |
News |
PowerRating), mentioned recently.
Notice the stock triggers and entry but then proceeds to trade sideways. Notice
that during this time, the stock is trading within its normal volatility
for a stock of this price and volatility (for more on setting stops, watch my
audio/visuals, see notes below). Then, finally, the stock begins to
trade nicely in the intended direction(a). So far, so good.
Yes, when I was younger and less patient, I would exit stocks only to watch
in dismay as the move finally ensued. Now that I’m older and wiser (the first is
fact, the later is up for debate), I’m more likely to stick with positions until
proven wrong (i.e. stopped out). Also, to my defense, markets were much better a
few years ago–stocks tended to move much more quickly. Everyone remember 99 and
early ’00 when you couldn’t wait to wake up to see how much money you made while you
were sleeping?
On Friday, the Nasdaq sold off in early
trading, chopped sideways throughout mid-day, tried to really in the afternoon,
but then gave back most of those gains going into the close. This action puts it
well below its 50-day moving average.
The S&P put in a similar performance. This action
keeps it below its 50-day moving
average.
So what do we do? I don’t think you need
me to tell you (again) that that the market has been chopping its way lower as
of late. The sector action is no better. Once again, even recent high flyers
such as the energies and metals & mining are now showing signs of topping.
Therefore, continue to avoid the long side. On the short side, if you took
recently mentioned energy stocks, look to trail your stops lower.
No setups tonight.
FYI
I have the recording to last Wednesday’s
audio/visual presentation. In it, I covered some transitional (i.e. early trend
patterns), position management, and market conditions. Oh, I almost forgot. For
you guys out there, I also explained what to tell your wife if she catches you
looking at girls in bikinis! Email me if you’d like a free link to this and/or the links for the prior 12 months (covering entries, stops,
position management, damage control, scanning, sector analysis etc…). Note:
I’m a little backed up in my emails but hope to catch up soon.
Best of luck with your trading on
Monday!
Dave Landry
P.S. Reminder: Protective stops on every trade!
P.P.S. Learn my newest and most advanced version of my Bow
Ties Strategy. Click
here for details.