How to Call Tops

*This is the first of a series of posts I may start to do about my mistakes (hopefully I won’t have too many to do…). These are the trades that I try to forget about and move past because they were so stupid. The trades that I don’t like to admit to myself, let alone other people. But, the trades that I really should be analyzing and learning from (opposed to analyzing the winners – that shit’s easy). 

Back to the topic:

I know how to call tops. So do you. I know this because I have done it in the past and I did it recently. You probably have too. It’s okay. Kind of. You just have to identify them, learn from the, AND DON’T REPEAT. I am writing this in hopes to learn from my shitty mistake.

Here’s a quick step guide on how to call tops:

1) break your trading rules

2) do things that seem easy/obvious

3) celebrate/talk about your trading

This list could go on and on but these points apply to the specific example I’m writing about.

So here’s the recent top I called/purchased/lost real money on…

I fucking nailed it too. Chuck Schwab says I bought it at 58.71. Just missed the ATH high.

Here’s how I did it:

1) Broke a basic rule: I have a personal trading rule that I only make trades in the last 1/2 hour of the day. This is just something I do to stay consistent and to avoid chasing (see chart above). I work a couple jobs and trade on the side so I can’t rely on myself to watch charts and prices all day. Good rule for me, maybe for others too, maybe not.

This personal rule stemmed from watching stupid moves in the first 1/2 hour of the trading day. They often don’t reflect what really happens with stocks/mkts. It also stemmed from analyzing closing prices and ignoring all intraday moves (read @jboorman, @bigwavetrading for good examples of this. Good follows).

I couldn’t find the exact purchase time on Chuck’s site, but I’m pretty sure it was in the first 1/2 hour to hour of trading. Because, “holy shit, this thing is going to $100. I gotta buy it!”

Stupid. Mistake.

2) Trading is easy. Watch the stocks that are going up. Buy the breakout. Go golfing.

Not so much. If you trade stocks you know when you are focused mentally and making sound decisions. What sucks is that you usually don’t realize you are making shitty decisions until they are over with (aka: you lost money). I was not focused when I bought this stock. I wasn’t thinking “risk first – what could/will go wrong”. I was thinking “this shit’s easy. Let’s make money doing nothing. Let’s go golfing” (I was actually in an RV driving to go golfing all weekend. Hilarious).

Stupid. Mistake.

3) The stupidest and most embarrassing of all mistakes: talk about trades, think you are smart, act like you know things others don’t, tell your friends how good you are!… Stupid. Mistake.

As I just said, I was in an RV driving to northern MN to go golfing for the weekend with a bunch of friends. Good times. I was prepared to trade that Friday. Almost to a fault. (Side note: not being prepared is another good way to call tops. I was prepared though. Scanned a bunch of charts all week. Had buy lists ready). I was almost too prepared though. When everything looks good and obvious and all stocks are going up it messes with your head and makes you want to buy/break rules/talk about trades/ect. That’s how the mkt works. Nothing new. It will always take advantage of human error.

So I was in an RV, prepared to trade, knew I wouldn’t be paying attention in the last half hour of trading, drinking coffee/whiskey/baileys. Delicious. Let’s make money. Busted out the phone, put in an order, bought $MBLY. Told my buddies what I was doing. Talked about trading. Went Golfing. Sold 5 trading days later for a healthy loss.

Stupid. Mistake.

Learn from it. Don’t do it again.

 

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