Trading Edit

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Cover image: By Max

Trading pundits always talk about the big wins, the home runs and the fortune they just made. Yes, that happens and are important but other scenarios happen to — read on and find out how the following series of real-time events unfold. Talking about them and bring them out into the open can be insightful, fun and real.

In trading, this is what you are not supposed to do. So, listen-up and let’s get into what’s going on.

The research

I was researching chip and chip component companies in the UK and didn’t find any I liked the look of. I found IQE and thought it was the best that I could see. There were few to choose from and fewer you could buy in to. None of them were what I was looking for.

Initial buy

At the same time, I was logged in to a broker I use for something completely different and wondered, out of curiosity, if they had them listed somewhere. Well yes, they did have them and I bought a small amount on the spur of the moment, for fun.

Fun in this instance is the justification for a bad decision, disguise it as fun. It happens, we take a wee trade for fun or because we are bored. Sitting looking at a screen all day when the market is slow and there is no action while we wait on a set-up to come into play or news to arrive takes disclipine.

I bought in at 23.8890 GBX, glanced over the bar chart and disregarded it. I assumed the volume would be so low as to not give an accurate short term reading. That panned out differently.

The rise

I forgot about it and couple of weeks later my partner pointed out that the price had gone up, doubled in fact. My reaction was surprise. Why surprise, That’s what I secretly wished for. I hid my bad decision behind the excuse of fun. I sold them, cashed in and we had a giggle about it. A bad decision with a good outcome referred to as luck. The self deception was complete.

Daily Chart

Where I initially bought in 23.889 GBX
Where I discovered it had doubled and sold 53.330 GBX
Where I bought back in 57.391 GBX
Where I am now and where I bought more 42.960 GBX
My overall average. Above this line I’m in the money 51.6759 GBX

The re-entry

The following day I bought back in. Emotionally elevated and motivated by greed. I ignored the price took a small stake, arrogance.

Another two weeks or so passed and my partner told me, that the price had gone up, but had now gone down and I was underwater. There’s nothing like a loss to trigger your primal instincts. I looked at the chart, and considered my choices. Recalling the wisdom of Warren Buffett, I bought some more. Though I’m not sure I loved the stock. It was a side sidebar play, for fun — wasn’t it!

Buying more shares at a lower price brought my overall average down, to around 51.6759 GBX. That’s my break even point. Above that and I’m back in the money.

Reversal

As we go in to the weekend the price is around the 41.3600 GBX mark. The signs of a reversal, were there in the chart. If I had been paying attention to it sooner I would have had a better understanding of the situation and may have acted differently. The fundamentals and news alerts I haven’t even touched on here. It also increased my exposure.

Always Learning

What can be learned from this unfolding scenario — a lot about attitude, emotion and camouflage. That a bad decision can have a good outcome, luck and a good decision can have a bad outcome, bad luck. Both sub-categories of life. But has there been any good decisions here at all! Perhaps in the awareness of actions and to acknowledge, analyse and share the scenario.

Have fun consciously. Know that you are having fun and you have departed from Trading and enjoy the moment. You are playing like you are on the slots at Vegas. Play your games with an affordable stake you are happy to risk and lose.

Don’t confuse play for Trading.
Don’t confuse a lucky guess for skill.
Arrogance after a win can lead to an irrational re-entry.
Trading requires explicitly stated rules that are followed to the letter.
Observe and analyse your emotions.

M30 Chart

The upside auction ran out of steam. A poor high suggesting it may return
This idea is reinforced by the high here.
Two crows, often seen at significant levels, here it’s going down, hesitantly signified by the long leg doji
A weak high, will it come back through here?
Two crows and an engulfing bar it’s going down, without hesitation
After here it enters a consolidation period with a downside test and recovery just before the close for the holiday weekend.

Round up

Looking at the weekly bar I am perplexed by whether the tweezers are a poor high and the market is likely to return to that price or a double top and and it is not. As the second bar is leaning towards a harami I suspect it is not. The second bar forms the first bar of two crows. I’m not encouraged. Perhaps the weekend break will turn things around.

Risk Warning

— This communication is for recreational and entertainment purposes only and should not be taken as investment advice, a personal recommendation, or an offer of, or solicitation to buy or sell, any financial instruments. This material has been prepared without taking into account any particular recipient’s investment objectives or financial situation, and has not been prepared in accordance with the legal and regulatory requirements to promote independent research. Any references to past or future performance of a financial instrument, index or a packaged investment product are not, and should not be taken as, a reliable indicator of future results. Max Gold Ltd makes no representation and assumes no liability as to the accuracy or completeness of the content of this publication.