Post Mortem on Two Bad Trades

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This article is about being a Monday Morning Quarterback from a game that happened on Monday morning….I made some really bad moves and want to take a few minutes to analyze in a bit more detail what happened, how it happened and hopefully help you avoid making the same mistakes.

Quick Review of the Situation

I started to write this article about the five stocks I would be watching today wondering if there might be a winner in the group. I had a busy week-end and did not run my normal screen as carefully as I have in the past, had a bit of a rough night and woke up feeling like I needed to “get in the market.”

I allowed my emotions to take over and in my “rush to make a trade” grabbed a couple of print outs of stocks that my week-end screening identified.  Before I was even full awake, I dove head first into two very bad positions!

The Sequel May be Better than the Original

As detailed in my previous post, before 10:30 in the morning on a Monday I was bleeding money from my positions in Voltari Corp (VLTC) and Memorial Resource Development Corp (MRD). I hastily reported the activity and decided that in the next article I would take a more rational approach so here goes – hopefully you will agree that the sequel is indeed better than the first movie and I DO NOT WANT THIS TO BE A TRILOGY, PLEASE!

The Original Game Plan for the Day

Why I felt like I needed to irrationally enter into a couple of stocks I knew absolutely nothing about will remain a mystery.  My original plan for the day was to review my screens, rerun them with new information and then double check for the best possible opportunities for the day.

If there are no opportunities that present themselves, my experience says take the day off because in the stock market, opportunities truly are likes trains and buses – wait a few minutes and another one will come along.

I had five stocks picked out from what unfortunately proved to a screen with holes in the wrong places and reviewed the charts looking for my treasured “saw tooth” action. I want stocks that trade up and down across a 2 to 5 day period and look like they will continue to see-saw along for a while as the fear and greed of the market plays out.

I like these kinds of charts because I can usually enter at a point above the previous low and if I am patient enough, sell at a point 2% above my entry price.

So here are the Opportunities for the Day

Before the meltdown, I identified these six possible suspects for today’s trading:

  1. Xilinx (XLNX) – a technology company engaged in programmable devices (I know quite a bit about that world so would be comfortable buying this one)
  2. Mas Tec (MTZ) -  engaged in the design, manufacture and marketing of contemporary and traditional leather and fabric-upholstered furniture  (seems straight forward enough and easy to understand)
  3. Laredo Petroleum (LPI) - exploration, development and acquisition of oil and natural gas properties primarily in the Permian region of the United States. (I have been following oil and gas for a long time so was pretty comfortable with this one also)
  4. Parsley Energy, Inc. (PE) - acquisition, development and exploitation of unconventional oil and natural gas reserves in the Permian Basin. (See comments on LPI)
  5. Memorial Resource Development Corp (MRD) – yet another one engaged in the acquisition, exploitation, and development of natural gas, natural gas liquids (NGL) and oil properties.
  6. Voltari Corp (VLTC) - delivers merchandising, digital marketing and advertising solutions, primarily over smartphones and other mobile devices. (Seemed okay, but what I did not bother to research was how long they had been in business and look at charts back more than a few months!)

Choose one (or two) and Make the Play

The original screen as documented in previous posts gave me about forty stocks to do a little more work on and the above six were the best candidates for continued saw tooth action.  Setting aside the fact that the screen was faulty to begin with, I still would normally do at least 15-30 minutes of “getting comfortable” with the company before making a trade. For whatever reason, I did not do this extra work and it cost me. I chose MRD and VLTC on the look of the charts alone and like a raging bull out of control placed my orders along with the expected “upside sell” order for a 2% gain.

When the Trade Goes Bad, It Goes Bad Fast – So be Ready!

Time to “eat my hat!”  I was way off base and spent the next few minutes trying to figure out how to work a new trading platform I was experimenting with to reverse my order. By the time the dust settled, both stocks had fallen over 2% in less than ten minutes.

I saw that movie once before (ACTC) as reported in the previous post and was not about to let it go any further. I wanted out and I wanted out fast.

Lessons Learned (This Time)

Presented in a much more rational manner, here are some old lessons reiterated and some new lessons I learned that will become part of my rules of engagement:

  1. Trading is a business, not a game. Do not EVER enter a position before doing the research about the company and reviewing several different charts and financials about the underlying company.
  2. Check screens for accuracy (I had a 12 foot hole in mine)
  3. Don’t make active trades when learning new tools – DUH!
  4. Stay away from small caps – repeat after me, stay away from small caps. They may be okay for other, but not for me!
  5. Keep my emotions in check – do not the let the rush of getting into the market sway my judgment.
  6. Do not trade in the early morning or late afternoon and especially not on a Monday!

What If?

So, what if I had chosen one of the others on my list?  Here is what happened with each:

  1. Xilinx (XLNX)  - Up .66% on the day – A Winner
  2. Mas Tec (MTZ)  - Up 1.90 % - Another Winner
  3. Laredo Petroleum (LPI)  - Down .82% - Surprised I didn’t buy that one as well!
  4. Parsley Energy, Inc. – Flat – that’s certainly better than what happened!
  5. Memorial Resource Development Corp (MRD) – Down 1.45% and I was along for the ride
  6. Voltari Corp (VLTC) – DOWN 17.24% on the Day – Hard Lesson Learned!

Why is 20-20 hind sight so accurate?

Summary

In conclusion to today’s episode, the process is okay, it is the execution that failed.  I started the day intending to report my success and unfortunately had to report my losses.

So yes, I do live to fight another day and I am determined to develop a winning strategy, but I’m taking a few days off to lick my wounds and add more cautionary steps to the process.

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