2005-02-07, Monday - Update
I apologize for not posting the normal lists this morning, but difficulty with my historical (EOD) data provider has prevented me from creating lists for today. In addition, an early morning news announcement from ELOS pushed shareholders and traders alike into a frenzy before this morning's open. By now, most of you have seen the news and the resulting drop in price, but in case any of you missed it, ELOS illustrates a great example of why one should not panic when overnight news presents an obstacle towards profitability.
http://tinyurl.com/63hro
The above news link for ELOS indicates the company plans to launch a secondary offering of its shares. Companies often use additional stock offerings to raise additional cash. Normally, this sort of news disappoints current shareholders as additional shares dilute the value of current shares - resulting in a dramatic drop in price. This morning was no exception.
Although extremely concerned with the pre-market announcement from ELOS (knowing price would probably blow past our target stop), I waited for the opening bell as I watched the pre-market trades on the
http://www.island.com/bookviewer/javaversion.asp web site send the price of ELOS lower and lower. My brain filled with thoughts of "what I should have done or could have done" on Friday to lock in those profits. Fear began to take control as I realized my profitable trade on Friday was about to turn disastrous on Monday, and it would do so in a
very public fashion. When I received the opening print for ELOS at $29.37, my heart sank. Right there on the screen I witnessed a great example of the risks associated with holding trades overnight.
02/07/05 09:30:07 29.37 29.37 29.37 15622
As I contemplated selling for a loss right then and there, I walked away from the screen for a moment to clear my head. After all, emotions have no place in trading and I needed to think clearly. After calming down, I calculated the gap open at almost 10% and realized ELOS had now placed itself into the "large gap open" rule. You may recall that we do not purchase or 'short' stocks that gap by such large amounts as they often fail to perform as desired. The old adage of "most gaps fill" (meaning price often moves back to "fill" in the gap created at the open) would apply here if many of the traders and shareholders panicked this morning (as I almost did) and sold as soon as possible at the open. As a result, I decided to take the action often most difficult for me - sit on my hands and wait.
As I watched price begin to quickly move upward to fill the gap, I felt fear turn to confidence. The increasing level of confidence I felt resulted from two aspects of this morning's action. First, price began to move in our direction improving the likelihood of a profitable outcome, and second I felt the satisfaction of not succumbing to fear and not allowing that fear to determine the outcome of the trade.
Over the next 12 minutes, I watched price move upward and upward and pass our stop to the good side. Recognizing the reasons for taking the trade in the first place had now been overridden by news of a secondary offering, I needed to exit the trade before greed attempted to influence the decision making process. As a result, I exited at $30.61 for a per share profit of .72 cents.
02/07/05 09:44:07 30.61 30.61 30.61 700
While our trade ended with a gross profit of $504.00 USD and a 2% gain, the lessons learned far outweigh the cash earned. Relying on one's experience when trading, even in times of crisis, prevents the making of emotional and unprofitable decisions. Fear, greed and that sick feeling one gets when watching their own money seemingly wash down the drain prevent clear and rational decision making, and may result, in decisions detrimental to one's success. Nobody likes to lose money, but in this business, we will
all experience loss at one time or another. How we deal with the emotional aspects in trading plays an important role both in the number and severity of losses we experience. Had I not listened to my experience and allowed fear to continue to dominate my thinking, I would have experienced a painful and unnecessary loss. Instead, making the correct decisions in the face of mounting obstacles and fear reinforced my confidence and belief in my own abilities - regardless of the profitable outcome.
After concluding my focus on ELOS this morning, my attention turned to UBET. Price continued to improve on UBET as did volume, and it appeared as if we might exceed our target price before noon. By 10:30 AM, we had exceeded our target price, but volume still appeared strong. As a result, I decided to once again make the decision to wait. Fifteen minutes later both price and volume improved resulting in another jump in the price of UBET. Again, not wanting to allow greed an opportunity to dominate my thinking, I placed a sell order on UBET near 11:00 AM.
02/07/05 11:00:07 5.70 5.70 5.70 3100
The resulting sale of UBET provided a gross profit of $2232.00 USD and a 14% gain - our best percentage gain since the journal began. Although our sale of UBET resulted in significant gains, price on UBET may continue higher if volume continues to improve. As a result, we may find we sold UBET too early. If so, then I need to recognize the possible influence this morning's experience with ELOS played in my decision to sell UBET, and work to eliminate such influences in the future.
I hope you find the above information useful.
- Spydertrader
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