Stock Picks Never Work

I had always planned to post main updates about my overall strategy on a Friday. End of the market week and all that. Everything closes for the weekend and it’s a good time to reflect for an end of day trader.

However, today (a Wednesday for all those saturated in Olympic fever they’ve since forgotten what day it is) I had developed an urge to post about a different subject that’s been playing on my mind today.

The day started well and at one point I was up at least £35. Then a quick check of my trades around 5:30pm and I noticed I had lost all that and in fact I was looking at a small loss for the day (Markets closed with me down by £12, so only a very small loss). After a few minutes of checking my open portfolio prices I realised one of them was missing. Indeed, upon review my Stanley Gibbons trade had hit it’s stop and closed at a manageable £60 loss.

This was a very poor pick. From the moment I bought into it I was £30 down and until today it hard hardly moved. A very static stock with no liquidity at all. So why did I trade it? Simple fact of the matter is it was a poor piece of decision making.

It started when I received an email from a company offering a free top stock picks report. I get a few of these in my inbox each week, but this one was offering a free .pdf showcasing their 3x hot picks for medium/long term investment. Now, i’ve always been the skeptical type and never expect to receive anything for free, but on a whim I decided to submit my email address, opt out of their sales gubbins and check it out. Stanley Gibbons is a stamp collection company and the .pdf was singing about how rare stamps are rising in value and that this company would be a sure fire bet for investment opportunities.

The red cross indicates my entry point. I was betting Long 😦

Now, I did the sensible thing, and placed the trade against my strategy. To my surprise this stock had been trending LONG for years. In 2009 it was worth 120p and at the time of this email it was up to nearly 220p.

Then I made my fundamental error. I placed a bet, simply on the excitement of thinking I was onto a winner. This company had picked it, it was a trending trade, it looked great. However, my first snag was when trying to place my trade it rejected my £1 per point bet and explained the minimum was £5 per point. Throwing caution to the wind I dove in. Going LONG at £5 per point.

The major flaw in this was that at this price, I couldn’t afford a very wide stop loss. My stop was placed 12 points away. Meaning if it fell 12 pts in the wrong direction the most I would lose would be £60.

Well, it stayed open 41 days and moved nowhere the whole time. At no stage did I see profit and today it crashed out, hitting my stop and taking £60 with it.

I have to admit I was a little annoyed with myself on that one. Yes it was a trending trade, but it was too rich for me. I should have picked a trade that accepted a £0.50p or £1 per point bet so I could place a 60-120 pt stop loss, giving the position room to shift up and down and slowly following the trend it had been on for so many years.

I was a fool to let myself be enticed by this stock and today I’ve vowed to learn this lesson. No more stock picks for me from corporate companies. I’ll pick trades that fit my rules and use my tried and tested methods that have worked for me before.

In some ways, part of me feels glad to have lost the trade and no longer have it in my portfolio. It has been a thorn in my side for a good month and a half and now at least I can move on a wiser spread trader.

I’ve decided to write a few blog posts analysing my bad trades. Those that have failed. I think it’ll be a good exercise to regularly review my past choices in the hope to learn from what went wrong. Whether I can prevent them from happening again or if they were just bad luck. I’m also looking into doing a video soon via youtube I expect, showing how I pick my trades and place my bets via my brokers.

Thanks for reading.

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Comments

  1. Jason Else says:

    If the minimum bet size is too big for you, you can always part close a trade. You will pay the full commission of a larger bet, but this is a comfortable way of reducing your size and risk on a trade you want to enter.

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