I'm going to post a lesson that I relearned (again) today, in the hopes of guiding someone else away from this same mistake.
I have been carefully monitoring a few stocks in recent days that were poised to make nice breakouts to new 52 week highs. As many people know, this can present a nice opportunity to jump on these stocks for a quick run as the new highs are set.
Specifically, I got a nice alert on my alerting package (Pristine ESP, currently in beta test mode), that WHIT was "Approaching 52 Week High". Note that this alert was triggered at a price of 39 15/16, notifying me that the stock was within 1/4 point of its 52 week high of 40 1/8. I quickly pulled up the stock and saw a flurry of buy orders being printed on the T&S in green. The offer price of 39 15/16 quickly disappeared and the 15+ market makers at a price of 40 were quickly backing away.
Within 10 seconds, there were only 5 market makers left and I could smell a new high in the making. I jumped on board and bought 1000 shares at the ask of 40, as the last market makers were leaving. But wait, the last market maker never left. After quite a number of additional prints at 40, the traders finally gave up buying the stock. Five minutes later, someone dropped the offer to 39 15/16. Five minutes later, I gave up on the breakout and sold for a small loss at 39 13/16.
Well, wouldn't you know it that the stock never traded lower than 39 13/16. In fact, ten minutes later, the stock did breakout to a new 52 week high at 40 1/4, and it kept going higher, just as I had projected.
Many people may read this and say, "Eric, you dummy, why did you sell out your position!!??" Well, even with the benefit of hindsight, I believe that selling the position was the correct move. I bought on the anticipation of an immediate breakout and quick move to the upside. That proved to be wrong, since my timing was wrong for the breakout. I correctly took the loss and moved back to cash.
The real problem with this trade was my lack of patience. I am rarely subject to this particular mistake, but it caught me this time. The correct move would have been to avoid entering any position until the breakout was confirmed with a trade of greater than 40 1/8. Instead, I jumped on board early, at 40, and missed the entire move in this stock. Currently, the stock is trading on its days high of 43 1/2. My impatience cost me $3500+.
Stick to your plan and good luck,
-Eric |
