Stuck in a Bad Position

[catsrevenge 10]

Most recently purchased 20,000 shares of General Electric (GE) at $17.44. Got caught holding overnight, and the next day was their day to report quarterly earnings. Coupled with the foreclosure debacle, GE Q3 earnings coming in under and the DOW misbehaving that day, the GE stock tumbled well below $16.00 now leaving me somewhere in the negative $28,000 area. The question I now ask myself... Should I sell at a loss and move forward? How long will it take for GE to bounce back to around $17.44 from around $16 and change? Also, half the stock was purchased on Margin from TD Ameritrade. So there is about $35 per day in interest adding up. Any ideas from anyone? what would you do?

Chris/NJ

[SIUYA 11]

the first cut is always the cheapest

[Tams 20]

#1 priority in trading --- protect your capital

 

ie.

if you planned to hold, hold.

if it hurts, cut.

if it hurts and you hold, you are not trading, you are hoping.

and hope is the biggest enemy of success in trading.

[cuttshot 11]

Chris,

 

I would take a step back and analyze what was it that made you purchase the shares in the first place. Was it fundamental reasoning? Technically based? Once that is determined then you can decide if anything has changed now that this news is out. How long were you planning on holding the position? If you are still bullish on the position then hold it. If things have changed exit the position and move on to the next trade.

 

More so than the above info, you really want to have a game plan in place before getting into a trade. I personally don't trade around earnings releases because of the increased risk. The company could come out with terrible earnings and the stock could pop or the flipside as well. You will also want to have some type of target/stop in place before getting in. One of the biggest mistakes traders make is not having a plan before getting in. By not doing this you let emotions get in the way just like you are experiencing now. In your example if your stop was hit get out and move on. If GE begins to rebound then look to get back in.

 

Don't let this losing trade turn into a disaster. Live to fight another day. On the next trade make sure you have all this planned out before getting in. Hope this helps.

[MightyMouse 12]

Based on your statements, it seems that your trade was supposed to end before the market closed. SO DUMP IT. You made a mistake. Move on. If you can't stand losing, go see a psychologist. Don't let your account bare the burden of your short comings.

[MadMarketScientist 11]

I can't tell you how often my "hope" has just ended up losing me even more money. Seems when you really are looking to "just get even" or "bailed out" the opposite will happen.....

 

 

MMS

[Kiwi 16]

I can't tell you how often my "hope" has just ended up losing me even more money. Seems when you really are looking to "just get even" or "bailed out" the opposite will happen.....

 

 

MMS

 

Like so many situations in trading the worst thing is if you do the wrong thing then apply hope and it actually comes out profitable.

 

What just happened has strengthened a dysfunctional behaviour and you will play the same sequence out again and again until you've finally convinced yourself to stop playing to hope (lost enough money).

 

I can't count the number of times I got away with something - only to lose everything I gained and more over the next 10 or 20 trades.

[wwalker126 10]

First things first. You should never place a trade without a known strategy for that trade. Meaning, before you click to place that trade order you should already know answers to 2 important questions. 1) What's signaling you to make this trade at a specific entry point? 2) What predetermined criteria must happen to signal your exit point? As a result, you should have an idea of when to enter and when to exit. It seems as if you didn't have a strategy going into this trade, so I suggest take the lost, learn from your mistakes and try not to let it happen again. Good luck on your next trade!

[kingfisher3210 10]

Badly stuck. The Naked truth is no one knows what will happen.

 

You could sell your margin position in loss i.e 14000 shares and keep the other 14000 shares in your trading account for investment purpose.

[WorldTrader 10]

I have to agree with most everything that has been said. You need to have an exit plan before you ever put on the position. If it gapped below that then it should be sold. Also, you need to think about GAPS. They can happen in every market, even when they don't close on a daily basis or over the weekend. I have personally had large gaps on forex during news events.

 

Now back to the trade. The only reason I would hold, past my stop, which should never happen, but mistakes can be made. is because of the value of the company. GE is a good solid company with good management. They pay dividends and you have an expectation that it will go up over the long term. Why did they drop, news, earnings?

 

This is not hope or a guarantee, it could go the other way forever and become wothless, but the odds are still in your favor. Your account has to be able to not take a dent with this entire loss. So, if it does not hurt your trading and you can trade other stocks and make money and want to hold GE long term, then keep it. I know buy and hold is dead!

 

Just something else to think about, If you bought Apple last week at the high and it dropped $20 which it did..do you sell or hold...what was your plan? Will it go up or down from here, is it a solid company? The Odds are going up, but be ready for the correction and exit strategy.

BW

[MightyMouse 12]

I have to agree with most everything that has been said. You need to have an exit plan before you ever put on the position. If it gapped below that then it should be sold. Also, you need to think about GAPS. They can happen in every market, even when they don't close on a daily basis or over the weekend. I have personally had large gaps on forex during news events.

 

Now back to the trade. The only reason I would hold, past my stop, which should never happen, but mistakes can be made. is because of the value of the company. GE is a good solid company with good management. They pay dividends and you have an expectation that it will go up over the long term. Why did they drop, news, earnings?

 

This is not hope or a guarantee, it could go the other way forever and become wothless, but the odds are still in your favor. Your account has to be able to not take a dent with this entire loss. So, if it does not hurt your trading and you can trade other stocks and make money and want to hold GE long term, then keep it. I know buy and hold is dead!

 

Just something else to think about, If you bought Apple last week at the high and it dropped $20 which it did..do you sell or hold...what was your plan? Will it go up or down from here, is it a solid company? The Odds are going up, but be ready for the correction and exit strategy.

BW

 

Buy and hold is not dead at all. Buy and hold is as valid a stategy as it ever was.

[MadMarketScientist 11]

Have to respectfully disagree on buy and hold -- for now it is dead. At least in the classic sense of what people used to think/trade/do with it. Which was just buy almost any solid company and hold for the long-term. Considering indices like the Nasdaq have spent the better part of the last 10 years just rallying back to half of their peak - you can imagine how many companies - hundreds? thousands? will never return to their peak.

 

There's clearly a place though for long term holdings -- but, it has been different the last 10 years than when you could just plow your money into some top companies and just rely on the momentum of the markets over the years to send them higher. We haven't had that luxury in a long time.

 

MMS

[MightyMouse 12]

Have to respectfully disagree on buy and hold -- for now it is dead. At least in the classic sense of what people used to think/trade/do with it. Which was just buy almost any solid company and hold for the long-term. Considering indices like the Nasdaq have spent the better part of the last 10 years just rallying back to half of their peak - you can imagine how many companies - hundreds? thousands? will never return to their peak.

 

There's clearly a place though for long term holdings -- but, it has been different the last 10 years than when you could just plow your money into some top companies and just rely on the momentum of the markets over the years to send them higher. We haven't had that luxury in a long time.

 

MMS

 

MM,

 

Since the first stocks were traded under the buttonwood tree ( buttonwood?) the majority of companies that went public ceased to exist or merged. You could, then, say that buy and hold never worked if you are in the wrong stocks. Buy and hold does not eliminate the need to diversify and it does involve the need to do the unthinkable and add to a position when it is down. The difference being that you are not expecting it to go up in the next 5 minutes and you don't add when it is down 1 point.

 

If you buy Q's' and add to them and sit patiently, you'll be fine.

 

Nothing dies, its just sometimes easier than other times.

 

Regards,

 

MM

[dragon987 10]

Hi catsrevenge,

 

all what is said about the hope mode above, applies.

I only want to add a chart which I usually uses. It is based on the CCI as woodie uses it. There is a lot of free stuff around in the internet and even free chatrooms to learn more about the method.

After my humble opinion you entered the long right in the moment when th short trend started. The overnight gap is even a short entry sign for candle stick traders. Of course it can always flip around back long, you never know. There is unfortunately no certanty...

 

regards

d987

[libertas 10]

Most recently purchased 20,000 shares of General Electric (GE) at $17.44. Got caught holding overnight, and the next day was their day to report quarterly earnings. Coupled with the foreclosure debacle, GE Q3 earnings coming in under and the DOW misbehaving that day, the GE stock tumbled well below $16.00 now leaving me somewhere in the negative $28,000 area. The question I now ask myself... Should I sell at a loss and move forward? How long will it take for GE to bounce back to around $17.44 from around $16 and change? Also, half the stock was purchased on Margin from TD Ameritrade. So there is about $35 per day in interest adding up. Any ideas from anyone? what would you do?

Chris/NJ

 

You can sell some calls to make some money and mitigate the losses.

For example, if you sell 200 call options January 2010 @ 15.00, you get something like 52100 to your pocket right away.

BigCharts - QuickCharts

You can buy some protection in buying puts of the same or shorter term.

 

In between now and Jan 2012 you can take advantage of ups and downs to get out of the stock even at a profit.

Maybe you should read a lot about options.

 

Your current loss in not the end of the world!

[Head2k 10]

For the OP:

As some wrote here before, you shouldn't have initiated a position without an exit plan. Also, I wonder why did you post here. The title says you are "Stuck" in a bad position. That's nonsense, you aren't stuck anywhere, unless you choose to. Have you already decided that you are stuck? Are you seeking confirmation for your attitude? As a matter of fact, nobody here knows what the stock will do next. So I'd recommend to you to think of different scenarios. First, imagine that you sell it now and the stock instantly turns to reach your breakeven without looking back. Second, imagine that you hold it and it continues falling, say to $10. Now think of what these scenarios mean for you and what is worse for you, both financially and emotionally. Then pick the less bad option.

[Tradewinds 12]

. . . pick the less bad option.

 

We all need an objective way to make a decision. There are techniques you can use to do that. One simple way is to list a bunch of possible choices on a piece of paper. Then narrow those choices down to the 3 best ones. Put each choice in a column, so that you can compare strengths and weaknesses of each choice, side by side. Then try to quantify best and worst case scenarios.

Of course, time can either be your friend or enemy in this case. And you may have already made your decision by the time this post is made.

If the best answer causes you more short term pain. Then you need a pain management strategy. There is pain that comes from something killing you, or pain that comes from you getting better. Which pain is it? The pain comes from fear. Is it the kind of fear that protects you from danger, or is it the kind of fear that just eats you alive? Fear isn't necessarily bad if it keeps you from taking more risk than you can handle. Is that fear worth fighting, and something you need to work through? Can you conquer it?

If you take the loss, can you make the money back sooner than waiting for the price to come back. I think that is one of the most important questions you need in your list. You must consider "opportunity costs".

 

Opportunity cost - Wikipedia, the free encyclopedia

[ant 10]

catsrevenge,

 

I'm assuming that you normally trade this size so a $28K loss is not out of the ordinary for you when you have a losing trade. I could be wrong. You asked for an opinion, so here's mine. In my opinion, I would hold GE a little longer as it appears to be oversold right now.

 

The first chart shows a volume spike and the second chart shows a b-formation on a market profile chart. Both charts indicate that traders/investors got too short on GE. In addition, you can see excess at the low in the MP chart, which indicates the start of an up auction. I would put my stop just below the recent lows (below the excess), but GE needs to get above 16.37, if it's going higher. If GE pops a little, I would exit as GE trades towards the gap and not be greedy.

 

This is obviously your decision and your trade, but I gave you my opinion anyway. Good luck!

 

 

 

[bobcollett 10]

Hi catsrevenge

Have a look at the chart dragon 987 posted

Unfortunately I cant see the chart clearly BUT....

The chart shows the price is at support

The long term trend is UP

The candles show consoladation. That means uncertainity.

Which way will it go.?

Set a stop just below these support candles because the price can fall to the GREEN line!

Hold till the price moves back to those flat resistance levels and then sell half.

Then phone for more help

Bob Collett

[Tiobingo 10]

Lots of great advice and I imagine you're as confused as ever. Everyone makes good points. Hopefully when all is said and done, you'll learn to make better trade decisions based on a strategy that you have done enough home work on, to have the confidence in knowing that it is effective. No one makes real money on any one trade or another. The real money is made on an edge that your overall trade strategy and 'tradeplan' give you in the market. The problem with fretting a particular trade is that once it is over, as a trader, now you have to take another trade. And another. . etc.. Without a plan, most wind up failing. You're experiencing one reason why, right now, in real time. Get the most value out of this by learning the right lessons. Good education doesn't come cheap. Good luck.

[WealthFluctuations 10]

Hopefully you've got rid of this stock and stopped paying the interest on the margin you took out on it. One thing you should know that is just as important as a trading strategy is that no one and I mean "No One" cares about your money as much as you do. I see that you are taking a really short term approach by your declaration of being so leveraged in this particular case. Maybe try not to go so heavily into your margin and definitely buy on dips. Also, try to stay away from companies right before earnings reports because your'e essentially gambling whether the particular company youv'e chosen has beat expectations. I also think you should not be so invested in one company. I could be totally off base there and you r'e investment account may have many more companies, let me know if I am. GE gives out a decent dividend and companies that do that generally are less volatile. You were looking for volatility by investing short term in them?? Two stocks I would suggest to you and anyone else for that matter would be CHS and MGM. I feel both of those companies price should go up fairly soon. II have a short write-up about CHS on my blog at Wealth Fluctuations. That is all I've got to say about that.

[BlowFish 10]

 

"No One" cares about your money as much as you do.

 

I wonder if all the OP was simply after a bit of sympathy actually. Or maybe some moral support to do the right (but tough) thing. I guess they have had to sell the computer to make margin as the first post was their one and only post here. (guess you shouldn't joke about other peoples misfortune in a politically correct society).

[WealthFluctuations 10]

If your'e not prepared for the volatility margin can come with a rude awakening.

[TDEMT 10]

Hmmm...well, I would first ask, what does your trading plan state that you do in this scenario? That should tell you everything you need to know, right?

[catsrevenge 10]

I want to thank EVERYONE for their very helpful input ,about my "stuck in a bad position" post here. In general i`d just like to add that, I really didn`t have any so called "plan" that day, when I purchased the 20,000 shares. as a few people had mentioned, but believe me, next time I sure will... , Yes my position was and is short term. I had no intention of holding. What happened that day was, I had already bought and sold 20,000 shares SIX times that day at a profit. Being that for every penny it went up I would make $200 profit, I was riding the crests of the waves all day, and was buying in on dips, and doing very well, about $3650 in profit that day up to that point in time (around 330pm But what happened was that sometime around 330pm, i had just bought in, 20,000 shares at $17.44, and saw it wasn`t really doing much except see-sawing up and down around $17.45 and 17.43.... So I thought maybe I`ll just exit at my cost of $17.44 and call it a day. The door bell rang, and I ran to quickly answer it, when I returned 2 minutes later, the price began dropping $17.45,44,43,42... I thought, let me just hold it overnight and exit in the morning. Well, the next morning due to GE`s negative quarterly earnings report, it plunged to about $16.00. That`s where I became stuck in the position. Otherwise, I probably wouldn`t be. I may add that in the prior two weeks, I had made $13,500 in profits using my short term, quick scalping type strategy. But out of this whole seemingly negative scenario, a lesson or two has been learned. (1) Ignore the doorbell, (2) next time sell even at a loss, at all costs,just to get out, ($200-400-600 loss) in the 330 pm dreaded zone when most day traders mostly dump and exit, so my $3550 profit for the day would have been a little less,but at least i still made money and was home safe. Since Oct 13th I have been holding tight, but lately,I am considering dumping the whole 20,000 shares sometime after the mid term elections, even at a loss, but at least the interest will stop on the margin, which I dipped into, and I will be able to still move forward and profit everyday, once I close my position with GE. Right now this waiting game is like hell, and with my hands tied, each day is a loss. It also seems like every little negative report I hear about every morning, in any economic sector , seems to have its negative repercussion on my bottom line. Thank you all for your help once again, and I wish you all the best of success !

Chris/NJ