Failed Trade Review: Itchy Trigger Finger

12/12/2012 6:00 am EST


One of the first things drilled into newbie traders is the need to have a trading plan before entering the markets. But, as trader Brian Lund of shares in this trade review, even when you do, things can still go awry.

This post hurts. I mean it really hurts.

I have been pounding the table for a few weeks in my Monday Trade Ideas posts about TEX. Everything about the setup looked great from a swing trade standpoint.

And if you have followed me for any amount of time, you know I have written about how traditional patterns in the market can be distorted and that you have to account for that in your trading.

So why is it that I got shaken out of my TEX trade last Thursday and missed the move that I had been predicting would come?

Because I was swing trading with a day trader’s mentality.

I recently wrote about how I am transitioning back from a day trading style to more of a swing trade style, but I obviously haven’t completed that process yet. Let’s go to the tape.

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Here is the setup I was looking at; TEX coming out of a nice large down channel, where I got long. Then it even got better as a small consolidation area formed, which gave me an objective stop level.

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But the trouble began when the stock tried to break out above that resistance and was turned back, creating an inverted hammer. This was a potential “failed breakout” and I waited ‘til the next day to get confirmation.

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Confirmation did come the next day, however here is where I made my mistake. I sold when the stock was at the low of the day, instead of letting the day finish out. Of course, price came right back up and formed a red hammer, just below the breakout point.

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And thus the painful part. TEX broke out the next day and continued with a beautiful picture perfect follow through Monday. Ouch!

The problem with this trade is that I reacted too quickly, a la day trading.

Even at the low of the day when I sold out, I was just a hair below break even. Now if the stock had been at that low going into the close, I would have probably been justified in selling out there, wanting to avoid a possible gap down the next morning.

But intraday I could have, should have, given it more room.

Normally  I would insert some sage advice to myself here, but this time I think I will skip it, as I need to find a fiscal cliff to jump off.

By Brian Lund of

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