Buying and entry points tend to have much more thought than selling or exits. You must have a plan to stop losses AND to ride trends. In this post I am going to show you two trades that went wrong because I over rode my sell signal.
Trade 1 TVIX
On February 20th, 2020, I purchased TVIX for 42.30, a 2X Volatility ETF because I went with my buy signal. TVIX has been delisted but other long volatility ETFs are similar – UVXY and UVIX. All is good, TVIX is moving higher. I think I am a smart guy and sold it at 105 on February 28th for over a 140% profit. Nice right? Wrong! I did not have a sell signal yet. Below is the chart.
This was the beginning of the pandemic. Volatility spiked to record levels as the market sold off. TVIX hit a high of 975. Remember, my entry was 42.30. The final sell signal was 470. If I held some of my position to the sell signal I would have had 1000% trade in a month.
The lesson here – obey your sell signals!
Trade 2 JNUG
JNUG, a leveraged junior gold mining ETF was another sell signal mistake. The mistakes in this next trade are numerous. I bought JNUG trying to anticipate the bottom on March 17th, 2020 at 92. (JNUG has been split adjusted since 2020 but the percentages are the same) It was bouncing off the lower bollinger band and it showed signs of rebounding. My stop was 85. It came down to 86 and I removed the hard stop thinking this has to rebound. (Sound familiar?) It did not rebound and I held it down to 46 before being washed out for a 50% loss. Below is the chart.
Lessons learned here: (There are so many)
- Place your stop on your purchase immediately.
- Use hard stops not mental stops. The market will move faster than you can think or react.
- Selling some of a position proactively is a good thing. However, keep some of your position until a sell signal is triggered. You never know when you have a 10X TVIX winner.
- Sell your sell signals!!! If your sell signal is triggered – sell. No questions, no waiting for an intra-day rebound or better price. Just sell. You can always re-enter. Low can go much lower, take a look at the JNUG chart again.
- I had no business buying JNUG anyway it was was in bear-mode (MACD 2,6,1) histogram is clearly red
- Use a stop loss methodology, 3, 4, 5%, a close below a moving average, a close below the purchase bar, etc. Manage the risk.
The goal is to make money over the long run. It may be cliche but cut your losses and let your winners run. Risk Management is absolutely imperative, do not make the same mistakes I did.
These days unless something gaps against me, I limit my losses to 3.5-4.5% As the underlying goes up, my stop moves up.
