So I am writing today to talk about a loss I took on PACB yesterday.
To me, PACB was a big surprise of a runner. The news was good but I still felt people were over reacting and just chasing whatever was moving. Someone alerted in the chatroom that it was running so I pulled up the chart to take a look at it. One thing that I always like to check for when I see a stock running is the float size. From my experience, the best runners always have small floats, typically under 10 million. PACB has a float of over 50 million so to me that was a little too large to get very excited about buying. I had a feeling it would just be a big fail and leave all of the long chasers stuck buying the top which I definitely did want to be a part of. For the early part of the morning, I seemed to be right as it failed to break 5.10 on 3 solid attempts and would come crashing down to the 4.60-4.70s. However, as time kept going those levels just would not crack and PACB ended up running again to 5.10 and finally broke through. Luckily, I had yet to take any short position because I wanted to make sure it wasn't a bear trap - which is something we have been seeing a lot of lately (CANF, BLPH, etc.). I'm really glad that I did not try shorting it too early but I'm also disappointed in myself for not being able to capitalize on what was happening to the short sellers (I should have been going long in the 4.60s and 4.70s). It was indeed a bear trap. Most of the people who were already shorting it probably covered over 5.10 while the breakout buyers were showing up to push the stock up even further. This is something that happens all the time so I decided to just be extra patient and wait for all of the squeezing to end and for the stock to settle down a little. I really wanted to get a good short on this. I wanted to show you guys how it is done! I successfully did the exact same thing with RJET the other day but was not satisfied by the way I took profits on it. Anyway, I waited and waited and waited. I knew what was happening but for some reason I just didn't go long! I am very disappointed about that because I have been really good about getting in on the action with these strong stocks ever since day 1 of FORD earnings. For some reason, I was so hesitant on buying today. Maybe it's because I have been very short biased lately (I am not feeling good about the overall markets right now). Now, here is a recap of my trade on it:
We got a nice squeeze to 5.80 and then a nice reversal. This trend change was what I was waiting to see because I felt it would get all of the chasers out and the better traders like myself would show up to start shorting it. I got in with 1k shares a little bit later than I wanted to but I was still okay with the entry since this is pretty small size. There was actually a little pop shortly after my entry but it was nothing that would shake me out for a loss. I didn't see any true strength behind it so I held the stock and it quickly fell back to my entry price like I expected. Once this little pop failed, I shorted 1k more to double my position at the same entry price because the trend was still in my favor and I saw it going lower very soon. I was dead on here. I rode the trend down for 20 cents ($400 unrealized profit) but did not want to take any profits yet because I was anticipating more downside for a 5.00 test in which I would have taken half size profit and then held the rest for a potential snap. Again, I wanted a big trade to show you guys how it's done! Looks like it cost me, but I only have myself to blame. PACB did not fall as much as I expected and it reversed on me very quickly! I got out for a loss according to my plan which was strength over 5.60. Although I am upset I turned a winner into a loser, I have no regrets. Every trade is a lesson, especially the losses. Here are some key takeaways from this loss today:
1. Do not underestimate a stock just because the float is higher than your average runner. At the end of the day, a 50 million share float is actually still pretty small. I should never count a stock out just if it doesn't fit my usual criteria. There were many long opportunities that I really should have capitalized on.
2. Have a more conservative profit taking plan when you are in a reversal. I was riding the bear trend while it was present, but I should have known better to get out fast because the overall trend was still very bullish. I also should have gotten in on the reversal much sooner than I did.
3. Don't get too stubborn about taking profits. I had my chance to make money on this stock today. I got too stubborn. This one of my biggest issues lately as I talked about in this older blog post: http://profit.ly/user/Ike/blog/what-i-am-currently-struggling-with
I have been trying to stay in winning trades longer but that often come back to bite me. I need to just focus more on the play at hand and treat each trade as its own.
On another note, I was a little upset that the mods gagged me. I guess I broke a rule because my alert was split into like 4 different statements. I was just trying to get my thoughts out there quickly as they were coming to me. I'll try not to do that again though as I guess it matters to them. I don't want to break any rules.
That's it guys. I hope you can learn something from this. I was upset with myself after this loss so I decided to log out and go for a run. I needed to let out some frustration and I refuse to be in this state of mind while trading. If you are angry in front of your PC, get out of there. You will likely just revenge trade and lose even more. To clarify, I am not mad that I took a loss. Losing is part of the game. I was just mad that I turned a decent trade into a loss because all I had to do was take profits.