The “whiplash” happens when you get shook out of a position, belive the new direction, comit to a buy in that new direction, then the stock reverses direction again.
Trade Well.
The shake out is a simple process in which you are convinced to get out of a position at the worst possible time before it reverses direction.
The Causes:
Most often we find ourselves shook out of a position when the stock takes a turn in the opposite direction that we had believed it would go. This can be a good thing if the stock continues to head in that polarized direction, but that would be a “Wise Decision”. The “shake” element becomes evident when the stock immediately reverses course upon your decision to cut your losses. Don’t beat yourself up in these situations though, a truly wise investor has stop limits on each of his/her positions that they treat as the law. It’s just that they sometimes cause you to get the shake out.
The Scenarios:
Most often you will be shook out when a long position has pulled back significantly in a short period of time and it has reached some sort of criteria to cut your loss. It can also happen on a stock you are short on that has turned positive. Now, stocks reverse direction for good reason quite often and if that is the case, you should just get out and not wait for your stop loss to be reached. In the event that you believe the turn in direction is unfounded, then you will need to keep an eye on your bailout paramaters that you already have in place. And if those criteria are met, and you leave your position, that is when the “shake out” can occur.
The lesser known scenario for a shake out is when you believe that your position has peaked and that the stock is going take a major turn in direction. You sell your position and the stock continues in a direction that would have made you more money. Some people will argue that an investor should close out some of a position to take some gains, but the bottom line is if you sell one or all shares of an investment and it continues to go in a direction that you would have made more money….you have been shook out!
The Bottom Line:
Someday, you will get out of a position that you will swear was the exact turning point for the stock. Grin and bear it. It is a part of being a serious investor. The most important thing to remember is to not let yourself get “Whiplashed“.
Trade Well.
Good morning! Good morning indeed…I just booked a 300% gain for the first time since I began trading. I have been able to find a good amount of positions that double in value, but this is by far one of my favorite trades.
I can remember how it began like it was yesterday, it was early morning September 5th and I had a list of buys from my research the previous evening. One of those positions was Molson Coors (TAP). They had announced a 2 for 1 split and their charts were looking really good for some upward movement. I bought 2 Jan 08 $90 calls for $1,075. I had high hopes of doubling my investment and the next couple of weeks showed promise of achieving just that.
Then, last week, the stock split and it continued to inch up even though some shmuck came on CNBC one morning talking about how the beer stocks were all sells according to him because they were performing better than they ever have. I was fuming. There is nothing worse than a guy who badmouths good performance just because it makes no sense to them. A warning, sure we can all appreciate that, but telling the world that nothing makes sense because you don’t believe in it really pisses me off. I wasn’t mad for long though, because the guy was dead wrong; at least when it came to TAP.
Then yesterday I was sizing up my position to take the gains. I was feeling like I might let it run a little more but worried about a sudden turn around (although I was no longer mad about it, I still had that jackass in the back of my mind making me worry). To my surprise I woke up this morning to find that an announcement of a merger of operations was going to cause a big gap up in my position. I decided to strike while the iron was hot!
I logged on and saw that my contracts were trading at 11.30 - last/ 11.80 bid/ 14.50 ask! For a second my usual shark mentality (see this entry) kicked in and wanted to circle the waters, but I was happy to hear the game show contestant in me shouting “DEAL! DEAL!” as it hit the red button of my id. The shark swam away and my position closed for a cool $4,752. I walked around in circles for a couple of minutes, then wanted to wake my wife to tell her of the transaction…but she had a rough night with the boys waking her up and I let her sleep for another 15 minutes…nice guy that I am.
So that is it. I am still reeling from it a bit, but I can already hear my subconscious talking about what it really represents: Let’s book more like that and let’s book one even bigger!
Trade Well.
So there is this element of my trading I like to call The Shark. I call it that because it is just that. When I get into the “water” (the bid/ask/last amounts) of a trade, or when I have done my research, made my buy marks, checked my values and am ready to trade, I sometimes turn into a shark.
Sometimes things look just as they should on value and I buy within 10 seconds of looking at the water. Other times, it looks like a price I want to pay is below the surface and if they are not that far off, I turn into a shark. I get in a mindset that I can splash the water enough to drum the price I want up to the surface. About 25% of the time it works. Is the price moving because of my actions? Probably not, but the shark would argue differently.
There are serious troubles with this part of me that likes to surface. Some of the time (50 - 60%), my actions cause the price I wanted to sink further below the water. The shark believes this is okay because that amount will drown down there and end up floating back to the surface. He thinks this because approximately 2% of the time it does. Again is it a result of the shark’s actions? Probably not, but even right now he is inside me shaking his head at us for doubting his logic like an off mike commentator on a CNBC split screen debate.
As for the remaining percentage of time (you can do the math for the number), I am but a guy swimming in the water with a shark fin on my back being eaten by another shark. Splash Splash!
Trade Well.
So there will be no confusion, I will begin by clarifying the address of my blog. The 5500 is a group of dollar bills that went into action on May 9th, 2007 in the interest of my family’s financial future. They have served well; able to recruit four times their number as of September 30. Oh yes, there have been significant casualties along the way, but what revolution begins without some form of loss? What uprising that dreams of a renewed livelihood for its masses reaches that goal without sacrifice?!
I saw 40% losses before the turn around that I have not looked back from. I can remember that low point very clearly. My head was full of worry that I had made a terrible mistake and that I would have to accept a massive loss in a personal investment. But less than two weeks later, I had my next day that will live forever in my mind; the day that I had one position that was worth as much as my entire account at that low point.
Since then, things have been steadily increasing. Landmark days have been $11,000.00, $15,000.00 and most recently $20,000.00. $20,000.00!!!! I had schoolboy dreams of getting there by the end of the year and here I am with another three months to climb before then. Now, I will be finding out if it was beginners luck, or if I really have a knack for aggressive investment strategies. Stay posted!
