I feel like such a jerk.
Here I am making fun of short sellers for not understanding risk vs. reward and risk management…
Then I go on to have one of my WORST trades in years.
A loss so big…
It has nearly wiped out all of my 2023 gains.
All because I made two mistakes that could have easily been avoided.
And if I can make these mistakes after +20 years…I know it can happen to anyone.
But you don’t need to take a five-figure loss like I did to learn from it.
I’ll show you how I messed up and how it can be avoided.
How It All Went Down
Effector Therapeutics (EFTR) reported positive data updates from Phase 2 expansion cohorts evaluating Zotafin in patients with ER+ metastatic breast cancer at the 2023 Annual Meeting last Thursday.
The stock was raging in the pre-market on Friday, and it even received some high upgrades from Stifel and Mizuho, with price targets of $7.
Those are respectable firms and not some sleazy promoters.
Shares went from $0.46 on Thursday to a high of $1.27 in the pre-market on Friday.
However, when I saw the stock sell-off from its lows, I decided to buy some shares…
So that’s what I did…I was in at an average price of $1.10.
That’s a terrible entry, by the way. I’ve had my most success in panic dip buying…but buying a stock at $0.17 off its highs after it is up 100% is not exactly a panic dip buy, in my opinion.
So that’s mess up number one.
But that’s not what would cause me to have such a massive loss.
Usually, when a trade isn’t working in my favor, I will cut losses quickly.
But here is when things went bad for me….
I wanted to buy 8,000 shares of EFTR…
But instead, I “fat-fingered” and got filled on 80,000 shares.
A wise trader would have immediately gotten out of the position realizing their mistake.
And almost every time I am that wise trader.
But instead of starting off the day with a loser…I wanted to see if I could finesse myself out of this trade.
And as the position was moving against me…I was averaging down.
I ended up having 189,100 shares at one point!
When It Rains, It Pours
Unaware…the company announced a $7.5 million direct offering before the bell.
So here I am, trying to buy stock. Meanwhile, it’s selling off because they announced an offering.
I managed this massive position pretty well…I got out of the trade at $0.956.
However, with so much size on it…it resulted in a $27,202 loss.
Source: Profit.ly
Takeaways From This Loss
- You’re one trade away from being humbled. I was on my way to coming back from my first losing month in years. And now I could be looking at two consecutive losing months just because I was too loose one trade.
- If I make a mistake, bail the trade. I tried to finesse this trade once I realized I bought more shares than I wanted.
- Pay Attention. I trade super volatile stocks. And I need to focus on my trades when I’m in them. Being slow to realize the stock offering and not reacting quickly enough is inexcusable.
- I’m still profitable on the year…but barely. Whenever you take a big hit, you naturally want to get it back immediately. However, that can lead to bigger losses. That’s why I will try to focus on one trade at a time and rack up small wins.
Taking big losses is something every trader must deal with at some point in their journey.
And while it’s never fun, you must use it as a learning lesson, or you’re bound to repeat your mistakes.
I’m not going anywhere.
I’ll bounce from this loss like I’ve bounced back from the rest. And it will start with getting back to the basics.
If you need a refresher on the basics (and we all do from time to time), then you’ll want to check this out
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