Learning From Your Mistakes

Every trader makes mistakes.  What separates the traders who make it in this business and the traders who are a statistic is, do you learn from your mistakes?  The first step is identifying the mistake.  The next step is during your review of the day figuring out what you should have done different.  The last step is the toughest, now you have to implement the correction of that mistake in realtime trading.  The example I have of this process is from a trade I took in Cameron International(CAM) two weeks ago and a trade I took in CAM today. 

As we have talked about beginning last week the volatility and ranges of stocks has increased dramatically.  This has caused the management of trades to become more difficult and if you aren’t making the proper adjustments in your trading you are probably getting whipped out of good trades.  The best example I have of this was a trade I took in CAM on April 29.  I entered the trade on a consolidation pattern after a huge down-move on the open.  The stock had been in the news because of the oil spill concerning BP.  I entered the trade at a spot with a good risk/reward ratio but because of the increased volatility got whipped out of the trade and took a big loss, more than I expected.  The first mistake I made was I panicked when the trade went against me.  Then I exited the trade at the worst spot because I should have realized that the idea was still good.  I either should have waited to see if CAM was going to hold this price or should have reentered the trade when it headed back down.  The stock had and 8 point down-move and I didn’t participate in enough of it because I missed up the ideal entry. 

Going into today CAM was on my radar as a very high percentage short.  I either wanted to get in the trade at the break of the bottom of the range or test the top of the range.  We started to break down in the morning and I took a decent loss on the trade.  I put in an alert for 38 with the idea that if the stock showed some weakness up here I would get involved.  CAM traded up to 38.50 but then showed some signs of weakness as the SPY traded down from 117.  I got short at 38.10 and looked to build a position below 37.70.  I took some shares off around 37.50 but really believed that it should break to around 37 even.  Well after I covered a piece the stock started to immediately trade up and I was planning my exit.  But then I remembered what had happened two weeks ago and decided to trust my idea.  I planned to hold my trade to at least my original entry.  I added back on at the 37.90 area and got paid off in a big way to end the day. 

The key to all of this was identifying a previous mistake and applying it to the here and now.  Trust your ideas and preparation of the trade.  Don’t let your emotions get the best of you and try to limit your mistakes.  If you can limit your mistakes profitability is around the corner.  Best of luck with your trading and have a good night. 

Kyle