Fear is probably a trader’s worst enemy. I know I am constantly fighting the fear of loosing opportunity when a stock I monitor is moving higher quickly, or that I am going to lose big on a gap the next day.
I have been writing in my journal each time I face that feeling and came up with a check list for both entries and exits on extreme price moves. This check list came in very handy earlier this week on a short position I had on GMXR. It gaped on the pre-market on news of completion of a Nat Gas project and was set to open high at around $10.20 for a 13% loss.
My original stop was set to $9.76 with a market order to trigger for sure right at the opening bell. I decided to put my check list into practice and canceled my automatic stop order before the open to exit manually. Right at open I began to look at the orders on the L2 and the print with my finger on the “Close Position” button. What I saw was that lower and lower bids were being taken and the price began to drop precipitously. I kept my finger steady. I was looking at a 3 min chart where I saw around 9:45 that the price was finding support and began to rise quickly. I pulled the trigger and covered at $9.75 – a penny lower than my original stop and for a 5% loss.
Here is my “Don’t Panic” exit check list:
- Check L2 for position sizes and prices.
- Make sure that large positions – buy or sell- come from major EDNs like nasdaq, NYSE or BATS. If large orders come from BOSX or CBOE are most likely not real. See previous posts: Here and here
- Look at the print and see where the price is moving while monitoring for large orders that support price direction.
- Look at 3 min and 1 min charts to visually identify short-term supply or demand levels.
- Exit only if all of the above point to price movement against the position.