GEOY – how a stop order can potentially ruin your day
Yesterday GEOY gaped down under a base. In our trading room pre market recap we highlighted GEOY and KEX as our best potential short.
I shorted GEOY against the $15 level not being able to call it out in the room as the break was quick and bid and ask spread was high. Trade was going well i trailed profits with the 2′ down trend and was up nicely on the day. I was starting to look for some more setups calling live short in MNTA in the room , couple of guys took KEX to a nice move down. Meanwhile GEOY started to pivot around the $14 level.
I called a short below $13.83 with a $14.10 stop , i usually use Stop market orders to get into trades and than out with limits orders via LAMP or ARCA. I put my order in and went out for couple of min. , when i got back the stock was already trading at $14.30ish area needless to say that on this stage i was down big on the position.
The interesting thing about this is that the $13.83 level was never been taken. My only mistake in those 2 plays in GEOY is that i should know better no to short a spread stock with an auto order. We must understand that stop orders are triggered when the bid/ask order size in the exchange’s order book falls below/above the order’s trigger level. Which means that in a stock with high spreads like GEOY the order got triggered as the bid was below $13.83 although the “price” wasn’t reached yet.
According to my risk management system I’m not supposed to lose more than 1R = 1risk unit in a trade. But also as an experienced trader i know that the down trend that started in the morning hasn’t end yet until next pivot will be broke to upside i put a new stop above $14.38 , and called a new short below $14 in the room, this time it worked great trailing profits down all the way to the $13ish area. As traders we can take losses , we can make mistakes. but when the right setup is there we must be in – with size!
One of the hardest things to do is to enter to a position in a stock that we already took a lost at, but every setup is on it’s own, if you like it\understand it\it’s in your playbook.. Than play it!
I remember the day I learned at once to use only limit command in “spreaded” and / or low volume stocks.
My volume spike screener caught an early point of crazy movement. I entered and in several minutes was 5 R profit unrealized. I put trailing order and turned to other trades. When the trailing order was performed, I checked “realized”. It was 4 R… LOSS! The stock just had high spreads and low volume 200000shares, though 20 times more than its usual daily volume.
Have a nice week!