Quote from kybandit:
I'm new to trading and have been luck to this point...I made a possible bad trade and I', trying to find the exit...I purchased 1150 shares of POT @ 62.50 and I'm down considerable...Does this stock have any upside left or should I just cut my loss and bail???
I took a very nasty hit with POT as a new trader because I moved my stop loss to a deeper breakdown level instead of taking the small loss my initial stop would've given me. It was the difference between an $800 loss based on my initial stop (which I had the sense to place at a level that indicated my trade was very unlikely to succeed), and a realized loss of over $6000 based on moving my stop to a "disaster" level which definitely confirmed beyond the shadow of a doubt the long train had derailed and was now falling over the cliff.
There's a very wise saying that applies to trading: "The first loss is the best loss."
POT wasn't my only "face smashed into the sidewalk" trade, it was my first of many, and in every case I could've exited the failed trade for a small loss when the validity of the setup was no longer supported by price. At the point technical price action violates your setup, the only thing supporting your trade is your own opinion and the Trader's Prayer ("Dear God, please get me out of this break even and I promise to never ever do this again."), neither of which has ever been demonstrated to influence price.
So here is your crash course in technical trading and I recommend you educate yourself on all common trending patterns and trend reversal patterns, as well as the meaning of price support and price resistance, so you can put on appropriate size to support a hard stop loss at the place where the trend isn't your friend anymore in your particular time frame and holding period.
Based on your position size it would seem like you were working a day trade, or a very short short term swing trade based on a technical price breakout. Yet you've been holding through a short term trend breakdown as if you were a long term investor.
You bought a narrow range breakout in an established uptrend. Well done! Based on the size you traded, you have to decide where you're comfortable taking a loss if the uptrend shows signs of reversing.
For me, a breakout must hold above the range high (range resistance). I want POT to stay above 61.70 if price pulls back following my entry. Some traders will use the a break of range low (range support) as their stop loss level (a break of 59.86). Some will use a break of the price at which previous resistance should hold as support in an uptrend (in this case, the Jan 18th 58.10 high). With smaller size and a longer term holding period, deeper stop levels might be used.
So it's all about your position size, your expected hold time, your expected profit target, and the ability of price to demonstrate the strength or weakness you're looking for. When price fails, get out. You can always get back in later.
In a trend I want to see higher highs and higher lows, which is why I wouldn't hold a breakout if price dropped below the range low of 59.86. In fact I wouldn't hold a breakout there on POT if price didn't run at least 3.00 before pulling back, because a weak breakout is usually a reversal signal. This was a pretty weak breakout, what is sometimes referred to as a failed final flag in a strong trend.
Keep it small while you're learning and learn to take the small losses, so the winners can pay for them!
