As you may already know, we got a bad break today with Citigroup downgrading WTTR causing a gap down at the open. However, this was a good example of how using some discretion in your trading can very much help your returns and keep you from getting your shares “stolen” from you at less than advantageous prices. The markets are real good at that, so lets take a quick look at how this played out today.
A look at the daily chart will show our long position taken at $16.42 along with our current stop set at $15.00. Todays daily bar shows a spike right through that stop area and traveling all the way down to near $14 before recovering a lot of the days losses, closing at $15.84, down 5.09% for the day.
Now lets take a closer look at a 1 minute chart that will show how TTP handled this situation today. The stock opened at $14.80 which would have immediately taken us out of our trade a minimum of .20 below our stop giving us a loss of 9.86%. Normally we would like to wait about 5 or so minutes for the news to be digested and all the hard stops to be hit. We can see on this 1 minute tick chart that we hit the low for the day just over five minutes into the session before the stock quickly recovered over 10% before leveling off the rest of the day between $15 and $16. We may ultimately get stopped out of this trade however, this discretion not only saved us money but kept us in a trade that still may become profitable, only time will tell.
If you new to trading you are probably better off starting out with hard stops graduating to using “mental” stops with discretion once you gain some experience and discipline. Most importantly if you are going to use discretion in your trading, never let a position get away from you and take a severe loss, always have a point where you will get out of a trade no questions asked.