Most sites will talk about all the 1000% gains they supposedly made yet never talk about any bad trades or provide lessons to actually learn from. They want you to think that experts are flawless and never fail so you buy into their product/service and hope to make money. The reality is that is far from the truth. Many traders/investors just win 50% of the time unless they are manipulating the stock themselves which you have to be concerned/aware about in pennyland. That is why I put zero trust in any newsletters pumping a stock.
The difference between successful and unsuccessful traders/investors is simple. Unsuccessful traders make trades off hope and emotion while successful traders use rules created from tough lessons learned to guide their future decisions. Basically, for a successful trader, they let their winners run for large gains while they cut their losses very quickly as to not put a huge dent in the portfolio. When you do not have large losses to overcome, making profits in the stock market is significantly easier. Simple enough logic, right?
Usually, I am a very successful trader/investor but recently I made a very novice mistake and now is the time to reflect on it. Reflecting on wins and losses helps understand why it worked out, why it did not work out, what can be learned from it and/or how much luck was involved. Any trader/investor that claims luck is not a huge portion of the success they have is a liar in my book, completely unaware, or they are working with inside information and/or manipulating stocks. If it was that simple, they would not need to pat themselves on the back as results would speak for them and they would easily be wealthier than everyone else in the world. Now with that being said, Let us get back to the point of this article, which is my awful trade and what you can learn from my mistakes.
I broke many of my rules for this dreadful trade in Thresher Industries (THRR). For those unaware of what happened, lucky you, and here is a brief timeline. This is a stock I played completely wrong, right off the bat, by not buying at the right time. My first rule is to buy before the news in a penny stock, not immediately after. This does not apply to a listed stock as they are an entirely different beast. If you follow me often, you will notice just how differently I trade/invest in stocks like Sirius XM (SIRI) and Kodiak Oil (KOG) compared to penny stocks.
Penny stocks tend to meet resistance on news which was expected to be released and less resistance on good news that was released on a surprise date. Meaning, if it is common knowledge that a penny stock is going to have good news on a certain day, you want to buy before that day. More often than not, the stock will briefly rise after the good news is released (sometimes no rise at all) than fall from there. The existing shareholders are selling profits from the run-up to the news release and yet others are shorting the stock heavy while small individual investors are unaware and rushing to buy. Imagine trying to climb a mountain with a handful of likeminded people when thousands are running down it towards you. THRR announced their buyer and I acted like a fish and quickly bought the bait. I saw it starting to rise but I was overconfident and did not even notice how strong the resistance was on the Level 2 quotes. I held when I should have sold for a very small gain had common sense knocked me in the head but this time, it did not. I watched it fall and I should have listened to my other rule that my thesis is already broken so sell for a small loss and move on. Instead, I held my position, playing off overconfidence, hope, and emotion.
Now the stock went down to unforeseen levels and I should have sold again, even though it was a pretty stiff loss. My thesis was entirely wrong and the resistance continued to be strong indicating a potential bounce was technically unknown when/if it would happen. Did I sell? No, I made a bigger mistake by averaging down. Did THRR bounce after that?
Unfortunately, it did not and proceeded to fall to levels unforeseen by most before the dust settled and I had lost the majority of what I had bought. On top of it falling, THRR announced negative news less than a day after I bought on the good news which forced the stock down to those unforeseen levels (see the timeline). Fraud? Maybe, but I believe that only a small percentage of fraud actually receives its due justice. Since this is not a political article, I will leave that topic for another day or a chatroom conversation sometime.
Now I am in a very bad position. Had I not been down such a huge percentage, I would have sold to put my money to work in a stock I believe in. This is not a position I want to average down and hope for a bounce in either as every day I stay in this stock, I leave myself open to it being halted for fraud investigations and possibly losing all my money. Since the dust has settled and I do not believe this stock will get halted as the SEC is busy elsewhere at the moment with a so-called computer glitch, I will look to see if the shorts cover and give us a temporary boost to sell into. The ground has been found it seems, the volume died, yet the bid support has been strong so I will see how this plays out and will sell into any strength I can. If nothing happens soon, I will likely accept the pain, sell, and move on to greener pastures that I actually believe in.
The lesson learned is actually very simple. Leave your emotions, hope, and overconfidence somewhere else but the stock market. Create rules based on how you want to trade/invest and stick to them. Be aware of yourself, everyday, and how your emotions will always try to take control. After this trade, I took the rest of the week off as I did not want the bad taste in my mouth to affect my thinking in other trades. After a big loss, many people will try to gamble a lot more and take on unnecessary risk to try and make up the losses quickly. A few days off and some reflection on my trade helped cure that.
Here is a quick breakdown of some rules I created and broke during this trade. I actually took a few rules and broke them down further to make my points very clear. Hope this information helps. Good luck out there.
Rule 1: Do not buy on penny news that was expected but rather sell on the run-up to the news.
Rule 2: If the stock is not going according to the thesis you created before entering (lots of resistance), sell for small loss to protect your capital, watch, and buy back later if you reformulate your thesis to adapt to the new situation.
Rule 3: Do not buy on the way down, buy after the dust settles and resistance weakens. If the shorts and sellers win, it will go down to levels unforeseen.
Rule 4: Do not feel the need to make a play in a stock if you do not fully know what is going on (forcing action)…the need for excitement/action can make you an emotional investor rather than rule based and in charge. Many stocks go up every day, do not worry if you miss some. You will find plenty more stocks to profit from in the future.
Mike
At the time of publication, Kudrna was Long THRR, SIRI, and KOG but positions may change at any time.
