“Judge yourself not by the outcome, but by your process” ~ Michael W. Covel, The Complete Turtle Trader
I had $IMRS on my Potential Short watchlist for yesterday. In the afternoon the stock started downtrending and I was expecting a panic before close. That didn’t happen and I got out before close on a small spike, taking a $47 loss.
I am trying to become more thorough with analyzing my trades so I’ll go over the process that led to trading this stock and trying to understand why this resulted in a loss.
This stock has been up for no particular reason, other than share acquisition by Centara Corp. Moreover the company is not financially healthy: over the last 3 years the net Income has been negative and lower every year, almost doubling down between 2011 and end of 2013 – I couldn’t find the data for 2014. The acquisition of stock shouldn’t be enough to keep this up much longer…
It seems that somehow this stock is being internally promoted to get the price up, and based on this information, I think it may, at some point in the near future react like a traditional pump and dump and just crash, as it is not healthy business.
Unfortunately it is impossible to post the L2 sequence here, but there was also a consistent support being created (wall of 10-15 buyers appearing at once) at $0.8164 every time the price dropped below or close to $0.8100. This leads me to believe that the stock is being manipulated upwards, as these series of bids would instantly disappear as soon as the stock went back past $0.8200 – this was the continuous behavior for about an hour, up until the point I exited my position.
The chart clearly shows an over extension of the price following a big downtrend over the past 6 months, and the stock bounced without any particular/specific catalyst to push it up – I consider share acquisition by a third party company to be rather superficial news without essence. I am still confident that there will be a crash in the coming days, so I will keep watching it for an eventual crash in the coming days and maybe try to short again if the opportunity arises, as I don’t think it will hold.
Based on the downtrend and some chat/twitter insights (which I should probably ignore), I decided to enter once the stock price cracked $0.83, my fill was at $0.8030, which was basically one of the lowest points of the price during the late afternoon period.
My trade settings:
U% = 1%
U = $126.23
N = $0.11
P = floor(U/N)=1127 Shares
$P = $904.981
Trade Type: Short sell
Entry price: $0.8030 LMT
Exit price: $0.8369 MKT
Absolute Stop: $0.92 – not met, exited on gut feeling that it might spike again and didn’t want to hold over the holiday, not very scientific…
Loss: $46.98 (including commissions)
While not such a big loss, my emotional state over the process of trading this instrument was quite erratic. I was rather anxious (sweating profusely) as I watched the price action fluctuate and the L2 seemingly being manipulated. I still have a lot of work to do in terms of self emotional restraint and keeping my emotions in check; this however didn’t keep me from executing the trade the way I think it should have been. I will work further on the idea of separating the trade from its monetary value in order to increase my efficiency.
Over the next trades, I will also try to take notes on the output of my gut feeling in terms of the trade and see how it compares to the reality of the price movement of the market and end result of the trade itself. The subconscious mind is a supercomputer capable of analyzing vast amounts of data that we are usually unable to understand consciously, often untapped it is also a great ally when used properly.
By taking the subconscious part of my mind into consideration and observing how it correlates with actual results I will try to establish a baseline that may allow me to use my “gut” as an additional trading tool, by signaling on things that I cannot consciously perceive during the process. It will also help me determine whether my subconscious analysis is that of a fight and flight type of reaction (the opposite of what is required during trading) or if it brings any actual insight to my trade.
Here’s the information I was constantly watching:
- Time and Sales
- Level 2
Based on this information, my gut feeling was to exit the position when I started noticing that the L2 was seemingly being manipulated. It turns out that during this short run my gut feeling was right. +1 for gut.
Gut Score: 100%
I believe that in this case my process was sound and while I may have entered a bit early and incurred a loss, I don’t think that I’ve made any mistakes in the way I traded it. I think that my logic behind trading this instrument was properly implemented, but didn’t line up with the will of the market.
“Know what you are going to do when the market does what it is going to do” ~ Michael W. Covel – The Complete Turtle Trader