Lessons Learned: Patience is a virtue

Another title for this post could have been, “When a win doesn’t feel like a win.” Let me explain…

Yesterday afternoon, I was sitting on one day trade, and closely tracking TOPS for a squeeze. It had a lot of volume (127M) with a float of 117M. As it has been explained to me, this essentially implies that more trades of this stock were made today than the number of shares available.

TOPS started the pre-market session strong, hitting a high of about $0.40. Around dropping the first half of the day, around lunch, I noticed that the stock was starting to consolidate (see the first red arrow from the left). After observing the pattern, I bought in at $0.317, expecting it would squeeze (around the second red arrow).

In the ensuing hour, it started to consolidate further, but below my purchase price. I’d bought 20,000 shares, so my returns are magnified with each cent it goes up or down.

For good measure, I’d set a Take Profit / Stop Loss Order for $0.41 and $0.299. Yes, that Stop Loss order had a lot of runway. Here’s why: These penny stocks are volatile you often get a quick up and down spike in seconds or a minute and then the price returns to normal. I didn’t want to get stopped out due to such a sudden but momentary drop in price. But the goal was always that if the price trends downwards continuously, I’d stop the bleed.

What happened next

At this point, I should have let it play out, but I started to worry that it was slowly but surely developing a downward slope. At the same time, the highs and lows were also getting smaller and smaller. That is the very definition of stock consolidation. At this point, the stock either breaks up or breaks downwards.

In that moment, I decided that I would settle for a tiny profit if it peaks just a little bit and edited my Take Profit / Stop Loss Order. I set the Take Profit to $0.321 and then got antsy and made it $0.319. Good, I could relax now.

And wouldn’t you believe it? A minute later, the stock broke upwards and shot past my $0.319 limit before I could modify the Take Profit price and shot all the way up to $0.349 and stayed in that region for a short while before trending back down.

In the end, I wound up with a $40 profit instead of a potential profit between $500-640 (note: why a range? nobody is perfect.. the odds of you selling at the highest point are low, and most of us sell before it peaks because it’s achieved our target, or as soon as it starts declining from the highest price).

Dissecting the trade, and finding the lesson

Am I happy I didn’t lose money? Yes. Am I upset at the missed opportunity? Yes.

Did I do the right thing? Likely, yes. Just the other day, I waited on CODX to break higher when it was consolidating and it didn’t, and now I’m bag holding that for now. My mistake with CODX was that I didn’t set a Stop Loss because I was so confident that it couldn’t go down the morning after it got major good news (FDA Emergency Use Authorization).

So let’s talk about the lesson learned here. In the title, I said, Patience is a virtue. You may be asking yourself, ‘how the heck would patience have helped here?’ Let me explain:

Unlike the CODX situation from yesterday, this time, I’d done the right thing. I’d set a stop loss to ensure that I wouldn’t bleed beyond a level that I was comfortable losing. There was no bad news, the stock price wasn’t suddenly falling, and there was plenty of volume. At that point, I should have exercised patience and just let it play out. If it went down, I’d lose a small amount. But if it went up, I would reap the rewards and sell at the appropriate moment.

Let’s also assess why I was impatient. At the beginning of the post, I noted that it was my one and only day trade for today. So in that moment, I was more averse to risk than normal. And once again, it reinforces why I’m working towards growing my account to $25,000 and have the ability to execute unlimited day trades.

How I would have acted with more day trades

With more day trades, the first thing I would have done was set a very tight stop loss. If I got kicked out of the trade because of a spike, but I continued to believe in the stock’s performance, I would buy right back in at the lower price and ride it up further. If it kept oscillating up and down, I would scalp it multiple times (ride the low to high waves multiple times, selling at the high and buying at the dip) for a few small profits without worrying about one big win.

This is, ultimately, the lesson here and in most of my posts: If you are serious about growing your money, your first major milestone should be to get to a margin account with a balance of $25,000 or higher so you can execute day trades without restrictions.

Some afterthoughts

If you’re wondering why I didn’t use a Trailing Stop Order instead of a Take Profit / Stop Loss Order, it’s because TOPS and other volatile stocks aren’t a good fit for this order type. The sudden momentary spikes I talked about earlier can bump you out of the trade very easily.

Note sure what a Trailing Stop Order is? It’s when you allow the stock to keep rising in price and only sell if it falls by a certain $ amount or percentage from the highest price it reaches. So theoretically, you can make very close to the highest possible profit, while also ensuring that you wouldn’t sell at a loss. In the near future, I’ll do some videos on using these complex orders types on Webull and maybe other platforms.

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