Day 8 - Timber!!! (Kinda)

Today started out in the shitter, but I made a serious comeback. Still a loss, but a worthwhile loss. I learned a lot.

First off, I decided I'm going to offer my predictions the night before and we can then see how accurate they pan out. Last night I was talking with my buddy and we were going back and forth about the market. The end result was that Apple at $98 was a screaming short for the morning. I was ready to short. I wanted to short.

So 6:25am I get on my computer and load up some finance pages. International markets got hammered the night before, so Apple pre-market is already at $91. Shit! I missed my short. This is another reason why you should never be in the market when it is closed. I could have lost 9% without doing anything (if I bought.... since I normally short I actually would have made a huge profit, but this is too much randomness, which is why RULE #1 exists).

I'll be honest. I didn't know what to do. I didn't know how to react. And I just went with my short recommendation from the night before and boy was that dumb.

I want to talk about why this was a buy opportunity instead of a short opportunity. If Apple is already down 8-9% right at market open, what do you think is easier to do: go up or down? Remember, the DOW is already in the 8300s and it swings back and forth between low 8s to high 8s. Having the 9% loss increase to 12~15% seems pretty unlikely. Sure it can happen. If we broke 8000 in the DOW, it definitely would happen. But I don't see that happening yet, and even if it did, we would be protected by the STOP loss and just call it a learning experience. Remember it is ok to lose. You can't predict this perfectly all the time. So going up seems like a much more reasonable task and it definitely was. The funny thing is that all of this depends on your perspective. Everyone else was in the market prior to Friday morning, so they are already bleeding. We however are thinking 9% loss seems like an overreaction and having that move to 5-6% loss is much more plausible. So they will continue to bleed, but we dive into this opportunity. The stock ticker is still in red, which feels like it was a bad day, however again that depends on your point of view.

So how did I turn this pile of shit into half a turd? First my STOP loss triggered. At first I was pissed off, but looking back I'm glad it happened. A STOP loss is a good mechanism to say "Hey you fucked up... take a step back and figure out what is going on." So I took that step back. I reshorted at 95.50 and covered slightly lower. This was great. I was coming back. Then it was hanging out at $93. I didn't like that. It could go either way. I said to my other buddy, if it goes to 92 I'm going to buy. If it goes to $96, I'm going to short. An hour or so later it hit $96. I shorted, then covered 30 min later and turned my $400ish loss into an $70ish loss.

If you are reading carefully you will notice that I first shorted at 91 then my stop loss triggered at 95. I then reshorted at $95.50. That sounds pretty dumb doesn't it? At first glance it looks dumb. I have been thinking about this all day. It actually makes good sense and I didn't realize this until now. If I didn't have a STOP loss, I would have kept the SHORT going because I wanted it to get back to low 90s, so I could profit. This would have been my down fall, because I wouldn't have been able to seize the moment and take advantage of these quick trades which saved me today. By cutting your losses with the STOP loss, you can now focus on the next task with a clean slate. Instead of begging the stock gods to bring the stock down, I am able to get back my control and make an educated plan of attack on how to continue upward! Thank you RULE #2!

10/24/2008 AAPL COVER 100 $94.8076
10/24/2008 AAPL SHORT 100 $96.0024
10/24/2008 AAPL COVER 100 $93.9963
10/24/2008 AAPL SHORT 100 $95.50
10/24/2008 AAPL COVER 100 $94.9505
10/24/2008 AAPL SHORT 100 $91.52
LOSS: $-73.20