A Glimpse to My Whipsaw Trade

Have you heard the song “Watch Me (Whip/Nae Nae)” by Silento? The entire lyrics of the song is only telling us to watch him Whip. I wonder if the composer is also a trader…. Well, I don’t think so…. It just so happened that I connected the song to my frustrations at that time. Well, I think I did a bad decision on one of my trades. I felt worse because I got whipsawed on PXP… Yes, on PXP. So what is “Whipsaw” in stock trading? This is the definition of Whipsaw from Investopedia:

Whipsaw describes the movement of a security when, at a particular time, the security’s price is moving in one direction but then quickly pivots to move in the opposite direction. There are two types of whipsaw patterns.

The first involves an upward movement in a share price, which is then followed by a drastic downward move causing the share’s price to fall relative to its original position (fig 1).

(2) The second type occurs when a share price drops in value for a short time and then suddenly surges upward to a positive gain relative to the stock’s original position (fig 2).

Whipsaw patterns most notably occur in a volatile market in which price fluctuations are unpredictable. Day traders or other short-term investors are accustomed to being whipsawed. Those who have a long-term, buy and hold approach to investing can often ride the volatility of the market and emerge with positive gains. You may read further about it in this link: www.investopedia.com/terms/w/whipsaw.asp

The Hammer candles.

Last week, July 31, 2019, I still remember the price action of PXP during the morning. The price keeps going down in speed. Sellers are piling up… And me, as a holder of the stock, I watched my gains slowly dissolving… I bought the stock 2 days ago (last July 29 2019). Until I saw that it became a breakeven and then eventually became a paper loss. During that time, my mind is already calculating the dissolved paper gain as loss. So even if my cut loss has not yet hit, I decided to sell because of the fear that the stock might go further down. It was a solid red candle on the first half of the day. I was confident that morning that I did the right decision because as a trader, my priority should be to protect our capital. And I am aware that Pxp is a volatile stock.

Then 1:30 pm came and the 2nd half of trading day started. Suddenly the Bulls became aggressive slowly pushing the price back to its opening price. Then the candle became green…. And then I did not know that there was a news… So Pxp did a Breakout! It went as high as 10.28 from my entry @ 8.73. I lost a paper gain of around 17% plus another 14% on the following days (until eod of August 7, 2019). It was so frustrating. Yes, I admit that this happened to me. After keeping my mind cool, I was inspired to write a blog about my trade because I thought that it might help some traders to accept that this is part of the game. It was so frustrating but then I was able to use this feeling to challenge myself more. This experience thought me that I need to improve my trading plan and I still have so many things to improve.

So I was thinking back then, how can I improve my trading plan? Then I dissected that particular trade. I researched, I reviewed some of my notes and also watched videos in the past days… And I came up to a realization that I need to do something to minimize my chance to become the victim of whipsaw…

My realization is this:

1) I should remind myself to always check the condition of the market prior to market opening, during and after trading day. That day, I slip into my mind that the market was volatile. What’s in my mind that time is that the market might probably go bearish since it has been creating lower highs and lower low candles thes past few days.

2) I should have prioritized the chart of higher time frames (weekly/monthly) in my decisions whether I should buy and still hold the stock or not most especially if my strategy is position trading. If I did, I could have noticed the MA9x20 is about to cross on a weekly chart so I could have given the stock enough time to do its move.

3) I should have continued to monitor the price action of the stock and look for possible reentry near support when it bounced at support (MA9) since the price direction suddenly changed. From a downward, it went up and even breakout. If I did, I might have entered on the breakout. I was not able to do that because I bought another stock. I did gain on that other stock for around 5% but not as much gain as I could have earned if I stick with my trading plan in PXP.

Emphasize on my patience. I should focus more on improving my patience. I will try to Minimize “ang kati ng kamay” on my laptop. Think well before I click. If ever I decided that I will buy a certain stock after referring to higher time frames and I will then refer my entry point/points on lower time frames (daily, 4hr or 1hr).

I will have stricter rules on my Entry points, Cut loss point, TP, stop loss, trail stop. I will have to focus on improving my decision making and emotions during trading. It will really require more efforts and practice before I can minimize my emotion.

As mentioned above, if you are a long term perspective who has a buy and hold strategy, you do not have to worry about whipsaw. Only short term traders are the usual victims of whipsaw. But I am sure, if you are a trader, you have already encountered this and/or will encounter this in the near future. I have encountered it last week with PXP. Yes, PXP. Let me walk you through my trade on PXP.

Here is the screenshot of my buy and sell of the stock.

The reason why I bought the stock last July 29, is because I read a disclosure about PXP Energy firming up $6-B investment for Recto Bank gas project and after analyzing the chart. I would also like to mention that PXP is on my watchlist that week so I am really monitoring the stock. So when I read about the news and observed the price went up to high previous day’s candle, it was already a buy alert for me because I was expecting a breakout on its short term resistance. Plus the risk-reward ratio is high since there was a previous gap that needs to be filled. So after I bought it, the price continued to go up until eod so I had a paper gain for PXP.

The following day, the price still went up but the candle is a small green candle, still, I am holding my position because my target profit /resistance is still far and my gain is still small. On the 3rd day, I do not know any bad news about the stock but the price went down significantly during the morning that turned my paper gain into a loss (but the loss is still small). That made me decide to sell the stock immediately because of the fear that the price might go down further.

In stock trading, quick decision making is essential and your main objective is to protect our capital so even if I have some hesitations, I sold the stock. Good thing, I saw the stock went down a little bit further down before lunchtime resulting in a bigger red candle of about 5% loss from previous day’s price. But it didn’t hit my cut loss level, I just sold the price – as trail stop. Because I consider my paper gain as a loss on my part. It is a big no for a trader to have a paper gain then afterwards turned it into a realized Loss.

I saved these images in my Losing trades folder. Yes, I have a Losing Trades folder, a compilation of bad trades. I have that folder to remind me of my trading mistakes. I am pretty sure that as a trader, you also have made several mistakes. Some are severe, some are tolerable and some could even make you laugh. I am also sure that you have and you will experience whipsaw in your trades. It might have been recently also since the market is volatile… I want to tell you that you are not alone. We all make mistakes. We all have losses in trading and it is inevitable. We are humans and we tend to make a mistake. But it only depends on us what we will do on those mistakes.

Will you chose to regret those bad trades?
Will you just move on and never look back?
Is it better to review that trade?

In my case, I have chosen to analyze that trade and learn from it. I chose to share it with you without any hesitations and I chose to let it go and move on to my other trades but I will keep on improving my trades. I have to keep moving and keep trying. I would like to remind you that whipsaw is inevitable for short term traders so this could be just on those of whipsaw that I have and I will encounter. We can only minimize it. We cannot predict what the market will do. Still, protecting your capital is our priority so having a trading plan before buying stock will help you have better trades. I hope you learned something from my mistake. I’m sure there will always be another opportunity for us in the market.

Let’s keep trying. Keep on learning. Keep improving. Never give up on your dreams. We are almost there…

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