Fundamental Analysis and Position Trading: Evolution of a Trader

CHAPTER 22

What Not to Do: Three Botched Trades

I have read often enough that you can learn more from your failures than your successes. Thanks for that tip, but I would rather learn from my successes because it is more profitable! I make mistakes in either type of trade, so there are plenty of opportunities to learn.

If you read the last chapter, it may seem that making money position trading is easy. You just buy any chart pattern and hold the stock until it is time to sell. The next three trades show how dangerous that assumption can be. One trade highlights selling too late, one sells too soon, and the last one really screws up. Yes, I try to cover all of the territory.

MEDIVATION: SELLING TOO LATE

If you own stocks long enough, you may get hammered by the dead-cat bounce (DCB). I will discuss the event pattern in the section on swing trading (Swing and Day Trading, Chapter 5, “Event Pattern Setups”), but a position in Medivation (MDVN), shown in Figure 22.1 (daily scale), is an example. I exited 12 trades in my career because of DCBs and rode the rollercoaster waves of many more.

Figure 22.1 Failure of a drug in clinical trials amputates 67 percent of the stock's price in one session.

DCBs are not a fun chart pattern because each entails a loss of between 15 and 70 percent in one session, and that is just the start. Once the bounce ends, the decline begins. If earnings are ...