Response to Question

Posted by downtowntrader | 11/03/2006 07:45:00 PM | 0 comments »

Hunting R had a good question in the comments section and I didn't want to bury the answer in there.

Hunting R said...

I was looking over your report that StockTickr put out on your trades last month. On there you have a loss of -4R. I my world of trading I do everything not to ever let a loss get pass the 1R level - that the whole point of R. Was this loss due to holding a swing trade through earnings, or was it on a day trade and if so what happened?
Thanks - HuntingR

hunting r,
I am with you on trying to not let trades get past 1r. In fact, i only had 3 trades over a 1.3r loss since I started tracking r's. Sometimes you get slippage or gaps against you and they throw off the r's. As far as the ODFL trade, it's a case where the R loss doesn't show the whole story. Here is a chart of the trade:

I took the trade at less then half my normal R value because it was already pushing the lower bollinger band and therefore had a high risk of failure. Also, I had a small value for the R, comparable to most daytrades. The real problem was that I messed up my alert for the stop loss. I inadvertently set a stop for a long position instead of a short, and it didn't trigger. When I noticed, it was already above my stop and I exited the best I could. It looked bad, but the end result was closer to about 2 times my normal R. The sad part is that it fell apart later and I missed it.

You bring up a good point though about R losses. Swing traders are going to encounter gaps that will result in R losses greater then expected, so it's very important to keep up with earnings and to look at a stocks trading patterns. For instance, If I take a position in something that gaps all the time, I will reduce my typical R to protect against nasty surprises. I also stay away from holding for earnings.

Thanks for the comment.