Lessons learned from a losing trade: NFLD

[ACM Trader]

I just wanted to report my trade on NFLD. (swing trades 2-5 days)
I bought 800 shares of NFLD on Monday at 15.01 (10% of the capital allocated to my system 1).
Tuesday afternoon, there was a quick drop of 10%. Looking at the news, I saw that NFLD was going to have an unplanned teleconference that evening. The stock continued to plunge. I sold 400 shares at 12.52. Continued to plunge. I was able to sell the other 400 shares at 10.51 ! NFLD closed at 11.42. I was quite upset ! It was my biggest loss this year, 24%.
But, the teleconference was bad news and the stock opened Wednesday morning at 5.81 ! As we speak the stock is at 4.31 !
Lessons learned:
1.Everything is possible, especially with biotech companies = limited exposure on individual stocks.
2.Take your losses as quickly as possible: Very difficult to do when you see the bids dropping like a rock.
3. No revenge trade. I was tempted to buy back at the open at 5.81. Now at 4.31, it is an additional 25% loss.

Somewhat that "bad" trade felt like a winner because I could have lost much more, if I had been stubborn.

 

[Tums]

thanks for sharing.

 

[socalpt]

You should have check the news that the test results for blood substitute was not approved by the FDA.

 

[ACM Trader]

Quote from socalpt:

You should have check the news that the test results for blood substitute was not approved by the FDA.

I make money by buying "difficult" stocks. If I start rationalizing why I should not buy, I would not be 48% up this year with this system, long only. And I KNOW, thanks to backtesting, that a 50% decline in one stock is possible, about once a year, out of 600 trades. So I keep my exposure to one individual stock to 10% of total capital. SO, even a 50% drop does not cripple me, even if it hurts.

 

[IV_Trader]

Quote from ACM Trader:


I bought 800 shares of NFLD on Monday at 15.01 (10% of the capital allocated to my system 1).

sorry about your loss , but if you still holding the other 90% in stocks , you didn't learned your lesson.

 

[S2007S]

I traded VPHM once, bought in the high teens, ended up selling it in the low teens before it dropped below 10, will never trade another biotech or small cap drug company again. Not worth the risk.

 

[lindq]

Quote from ACM Trader:

I just wanted to report my trade on NFLD. (swing trades 2-5 days)
I bought 800 shares of NFLD on Monday at 15.01 (10% of the capital allocated to my system 1).

Sorry for the loss. My RULE #1 for years has been NEVER TRADE DRUG STOCKS. There are simply too many regulatory and legal issues that can kill you, unless you are inside the industry and know all the players.

 

[ACM Trader]

Quote from IV_Trader:

sorry about your loss , but if you still holding the other 90% in stocks , you didn't learned your lesson.

Don't be sorry about my loss, because I am not ! It is part of trading, unfortunately. I have only a 56 % win rate ! I am not sure I understand what you mean with the 90% in stocks. They are obviously in other stocks, not on NFLD !

 

[El OchoCinco]

Next time you want to load up on a bio-tech stock before a FDA or other type of announcement, simply buy some protective puts slightly OTM. You closed out at around 11.52 or so. Since bad news was going to produce a huge swing lower, in the future buy some OTM puts so that if the stock tanks you have a small insurance policy.

Since this was a bio-tech play, I assume you expected a huge jump in the price of the stock. Therefore, spending some money on insurance is not a big deal given the large expected move in the price (perhaps to $25 if the news was good).

Just a thought that when playing high risk scenarios such as bio-techs before announcements, why walk the tight-rope without a net? Simply add some OTM puts and then you know exactly how much you are going to lose ahead of time while still allowing for hueg profits on the upside. And if the stock tanks, no need to panic or get upset since you locked in your exit price, even if the stock gaps.

Quote from ACM Trader:

I just wanted to report my trade on NFLD. (swing trades 2-5 days)
I bought 800 shares of NFLD on Monday at 15.01 (10% of the capital allocated to my system 1).
Tuesday afternoon, there was a quick drop of 10%. Looking at the news, I saw that NFLD was going to have an unplanned teleconference that evening. The stock continued to plunge. I sold 400 shares at 12.52. Continued to plunge. I was able to sell the other 400 shares at 10.51 ! NFLD closed at 11.42. I was quite upset ! It was my biggest loss this year, 24%.
But, the teleconference was bad news and the stock opened Wednesday morning at 5.81 ! As we speak the stock is at 4.31 !
Lessons learned:
1.Everything is possible, especially with biotech companies = limited exposure on individual stocks.
2.Take your losses as quickly as possible: Very difficult to do when you see the bids dropping like a rock.
3. No revenge trade. I was tempted to buy back at the open at 5.81. Now at 4.31, it is an additional 25% loss.

Somewhat that "bad" trade felt like a winner because I could have lost much more, if I had been stubborn.

 

[ACM Trader]

Quote from optioncoach:

Next time you want to load up on a bio-tech stock before a FDA or other type of announcement, simply buy some protective puts slightly OTM. You closed out at around 11.52 or so. Since bad news was going to produce a huge swing lower, in the future buy some OTM puts so that if the stock tanks you have a small insurance policy.

Since this was a bio-tech play, I assume you expected a huge jump in the price of the stock. Therefore, spending some money on insurance is not a big deal given the large expected move in the price (perhaps to $25 if the news was good).

Just a thought that when playing high risk scenarios such as bio-techs before announcements, why walk the tight-rope without a net? Simply add some OTM puts and then you know exactly how much you are going to lose ahead of time while still allowing for hueg profits on the upside. And if the stock tanks, no need to panic or get upset since you locked in your exit price, even if the stock gaps.

Thanks for the tip. The way I trade is to trade two swing systems , long, only. I "hedge" through shorting ETFs when the market is extended. Options is ...an option. I need to see if it would have improved the returns of my system 1, which are pretty good without options : 2002 =+18% (Test) - 2003 + =+70% (test) - 2004 = +10% (Test) - 2005 = +47% (Actual) - 2006 = +48% (Actual).