I don’t chase trades - Just One Lap

I don’t chase trades, but sometimes I should.

Another trade, another lesson learned.

Again, the best way to explain this lesson is by telling the story as it happened. On Thursday morning, Woolworths released their financial results. I won’t go into too much detail, but in summary, the results looked very good. This gave me a few good reasons to buy their stock.

Firstly there was the price formation on the chart. It had come down nicely and had been testing support for a few days. Although it hadn’t given a buy signal yet, you could get the sense that the signal was coming. Secondly Woolworths had done a good job with their Australian acquisition and revenue was looking to increase steadily in the years to come. So the time had come to pull the trigger.

During the opening auction, I bid for stock slightly higher than the previous day’s close. The stock came out of auction a lot higher and after some slight indecision, shot up the page and started a fierce rally. I didn’t move my bid. I don’t chase trades. I’d figured that the market would give a second chance, which it does most of the time. In this case though, I was resolute that I would stick to the rules and not chase. I was adamant that I would get my second chance. I didn’t.

Friday morning came, and in accordance with my rules, I bid for the stock again. Again it opened higher, had a brief moment of hesitation (offering me a chance to lift the stock); again I didn’t move my bid higher, and again the stock shot up the page.

I had missed a R10 move on a R80 stock. That is a huge move!

So what did I learn? Well, first I should give credit to the person who taught me the lesson, for this one I didn’t figure out myself. @Trader1137 on twitter pointed this out to me:

–@TraderPetri I have a simple plan. If the share is up on the day … take the offer. If the change on the day is minus, sit on the bid.

— Trader1137 (@Trader1137) February 12, 2015

What hurts the most here is that on Friday I had the opportunity to take the offer, but apparently I am a slow and stubborn learner.

It is fairly obvious, if you think about it, although I never really have. Granted that the circumstances in which this would be applicable are rarely prevalent, they will from time to time crop up. And thus, my lesson is that sometimes you have to chase the winner, just a little bit.

Trader Petri