Ah, one of the seven deadly sins in trading, pure greed... I'm guilty of this one sometimes and I'm trying hard to overcome it.
A lot of you can probably sympathise. You see a stock that's taking off but you missed the beginning, and by the time you notice it, it looks like this -
I mean, how can you lose ? The stock is increasing at a logarithmic rate, who knows where it will end up ! I know we missed the start but lets jump on and buy at the next open and ride that momentum all the way up... yay !!
Yes, you can guess what happens next, the price instantly turns and you get stopped out for a big loss.
That's the problem with making trading decisions when you have $$$ signs in your eyes...
So how can you avoid these situations where the will is weak and you just can't stand the thought of missing out on some easy money ? It's not easy but it's critical to have discipline if you want to be a successful trader.
You have to always ask yourself, why am I making this trade ? Is it part of my trading plan ? Does it follow any of the rules that I have set up ? Have I performed a risk/reward analysis and factored in likely turning points ? Are there any fundamentals or news reports that could be making this happen ? The list goes on...
Anyway, lets take a look at the chart with hindsight and see if there were any signs of an imminent reversal that could have been spotted, or how it could have been traded better.
The most obvious warning sign is the price having logarithmic/exponential growth (ie ever increasing at a faster rate). That almost always spells 'bubble'. It's all the other FOMO suckers pushing the price up entirely on speculation.
Or how about the indecisive black candle in the middle of the trend, before the peak ? If you look at where it opened and pushed the price to before returning, it should have warned that sellers are starting to come into the market in force. In all likelihood, it's the smarter people taking profits and getting out before it's too late. In any case, 'hanging man' candles often signify the end of an uptrend and start of a reversal... ding ding ding alarms bells...
After one last gasp the trend exhausts and corrects, right while a lot of suckers were still buying. Remember what I said before, every buyer needs a seller and vice-versa, so even when the price was in decline people were still buying it, afraid they'd missed out. The panic sellers and profit takers just overpowered them.
So you're probably thinking, what should you have done ? Well... it's very easy with hindsight, knowing what happened. 'Ah, you should have bought at 'X' and sold at 'Y' like a lot of the gurus do. But I'll tell you my thoughts on it.
For a start, if I hadn't got in at the following two places I would have walked away.
The first is pretty decent from a technical point, an ascending triangle causing pressure to the upside followed by a break through resistance on a strong candle, especially if it was accompanied by increasing volume. (ok, to be honest, I would have put a sell order under that candle and waited to collect all the stop losses on a false breakout, but that's another story he he ;-).
If you wanted to be a bit more conservative and wait for confirmation of the breakout, then you could have waited for the little pullback and got in on this break.
But I digress... it's very easy with hindsight saying what should have happened, but the truth is, and I'll say this in capitals for clarity, FOLLOW YOUR TRADING PLAN. If I discovered the chart at the peak and had missed those two opportunities mentioned, I would not have traded any part of it because there was no reason other than greed and FOMO.
Don't just abandon everything and jump into trades without thinking because you think you can make a quick buck. Sometimes you'll get lucky and sometimes you won't, but then you'll be a GAMBLER and not a TRADER, a big difference.
You just have to accept that you're not going to catch every move, or see every trend or reversal until it's too late. But it doesn't matter, if you don't trade them then you haven't lost anything. The market will still be there tomorrow with lots of opportunity for you to make money, with discipline, using the rules set by your trading plan.
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Disclaimer : If you blindly act on the advice of strangers from the internet then you're an idiot and probably deserve to lose all your money. There's no fast track to success. Do your own research and make informed decisions based on all available evidence.