June 20, 2019

Trading Review: No suitable stop loss and Premature Quit

I made two trading mistakes today as a beginner: No suitable stop loss and Premature Exit. I want to discuss each in more details to help my future self.

1. No suitable stop loss

2 weeks ago on May 31, I observed a big sell-off of USD agains JPY. The sell-off happened because the US and China did not agree with the counterpart's trade terms. The USD price felt because traders worried that if trade war prolongs, USD economics might get worse and therefore they sold the dollar to park their assets to a more stable currency the JPY. I myself did not think that trade war will prolong [1] and leaders of those two countries will act when they see enough struggle from their domestic company. I also observe that historically since Trump became the POTUS, he had not one time tried to devalue USD against other currency to boost America's economics. Due to above reason, I bet that USD will rise again JPY after a while, so I entered USD/JPY position by buying 50,000USD at following distribution

USD$10,000 at 109,600
USD$20,000 at 109,250
USD$20,000 at 108,938

At that time, I thought that USD price will bounce back soon [2], so I did not put any stop loss orders for the above positions.

In monthly FOMC meeting, the FED decided to keep their FFR at 2.25 but presented a dovish view about the economics outlook ahead. They decided no rate hike this year and at most one rate cut next year, at the same time showing their fully support for economics expansion. This confirms traders' assumptions so far but presented more dovish outlook, which makes traders worry more about the USD and USD price felt to next level and stay at 107.650. Yesterday, when the USD was around 108.400, I thought about selling to cut loss, but somehow I refrained from doing it fearing a minor loss. This morning when seeing Japanese trader dumps USD, I decided to get out of the position with a loss of around 65,000JPY.

While my assumption at [1] might be right finally when early this week Trump tweeted that he and Xi will talk about trade deal at G20, I entered the position too soon, trying catching the falling knife. My first mistake was that I was too naive to think that the USD will bounce back soon. My second mistake here was that I should have cut loss earlier last night. This is my second time I carry my position over the FOMC, the last time I "enjoyed" 250,000JPY loss. This is the second time and I should not let it proceed to the third time. Finally, my biggest mistake as a beginner trader was I did not put a loss cut after my enter.

I should learn these lessons by putting a loss cut order for each buy order, cut loss sooner, and stay away from major events in future trading.

2. Premature Exit

I have been holding SoftBank Group stock for 2 weeks and I enjoyed its price rise. At 7.8% profit, I decided that it was the time to sell so I put a sell order at 10,255. 5 minutes later the notification came telling me that all stocks were fully contracted. I enjoyed the profit at 76,300JPY which is not bad at all. However, after my sell order, SBG price continued to rise and stopped at 10,515 at closing time. If I had waited until closing time, I would have enjoyed a profit of around 10%. I made a small mistake by existing too soon and it costed me 3% profit or around 30,000JPY. 

I should be more patient, confirming the downtrend before exit in future trade.

By the way, when looking at the weekly price graph, SoftBank seems going to rise again so probably I will get in again tomorrow.


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