Thursday

Well, I got punked by the market again. Stopped out on the low of a candle just before the price reversed and put in the big move I was trying to capture. I do this quite a bit, as I've mentioned before. HFT's? Big players? In this case, they drove price down quickly in order to stop out traders and use the liquidity to fuel their intended upward move (in this particular case).

I had stopped out three straight trades before this happened, though in the third trade I would have taken profits instead of holding for a stop out had I not been following my loss-familiarizing exercise. For the record, I marked what would have been my exit with the orange dash at the top of the 11:40 candle.

Here's the kick in the pants: On that third stop out, I had moved my stop line up closer to my entry as the price climbed into what I considered a safety zone. My original stop is the short red line in the 11:30 candle. With this revised stop, I was forced out in the 11:50 candle when price retraced. In the next candle (11:55), price dipped a bit further before reversing upward as the choppy consolidation continued. Had I kept my original stop in place at what I thought was the bottom when I originally entered the trade, I would not have been stopped out at all during the entire consolidation phase and would have a very nice gain right now. I would not have been in the fourth trade (12:35 pm) in which I ended up being Punked; I would have been holding the thrid trade still!

This is a perfect example of the gamesmanship that is trading. It is a contest between experienced players (or their black boxes) who know trader habits and psychology and the prey on which they feed (like me, if I were trading live). All those traders who got long during that consolidation area got stopped out and punked just like me in under two minutes by one of the longest five-minute candles since the open. The moral of the story is that a good entry price leads to a good stop price, which leads to a safe trade when one tries to trade a reversal of trend. Notice also that when the price was pressed down quickly in the 12:35 candle I'm discussing, it was pushed just 3 or 4 cents beyond the trendline marked on the chart. The reason the stock snapped upward in reverse after this spot is because people like me had their stops just below the trendline thinking it would hold. Stops got tripped, the big players bought them up, and price snapped up.

For the record, the orange dash in the current candle on the chart is where I would have stopped this out, had I been in. The orange dashes on the 10:25 am and 10:35 am candles are trades I was contemplating but never entered. Both would have offered gains had I played them right, but I'll never know for sure.