A Brutal, Profitable Trade: Key Takeaways
- Why being honest is harder than it sounds…
- Learn from the mistake that nearly resulted in my biggest loss ever…
- The #1 rule I broke on this trade and what I want YOU to learn…
Check out the TWIST podcast with Kyle, Mari, and Jack for more radical trading honesty!
Kyle Williams here. Not too long ago, I dodged a bullet with a trade — my WORST in recent memory. I came out of it green. Every fiber in my body is telling me to forget about it. But that isn’t how you become a better trader.
So in honor of full transparency, I’m sharing it all. Learn from this BAD trade. I never want you to make the same mistake.
Table of Contents
Why Honesty Is the ONLY Policy
Jack, Mari, and I always talk about honesty on the TWIST podcast. We like traders who are honest about their trades.
And we say that the only way to improve your own trading is to be honest with yourself!
But being transparent isn’t always easy. And just because a trader isn’t transparent doesn’t mean they’re trying to deceive you…
They might be embarrassed, for one. Take the trading day I broke down on a recent episode of TWIST:
It was HARD. There was one trade where I broke so many of the rules I trade by…
Yes, I made a profit — $3,329. But I’m still sick to my stomach about it.
Some people will say, “So what? The goal of this game is to make money, and you did that, so no big deal.”
I could be like the guy who makes a freak pool shot then says he called it. But I didn’t call it.
I risked a new biggest loss on this trade by not cutting losses and being stubborn. I entered the casino and got away with it.
But that isn’t how I got to $2.8 million in lifetime profits.
Read on as I break down the lessons I learned from this BAD trade…
Honest traders learn from their own mistakes. Luckily, you get to learn from mine too.
The Tasty Setup That Started It All
© StocksToTrade
Let me give you some background.
The week before this trade, car rental company Hertz (NASDAQ: HTZWW) ordered a fleet of Teslas. On the news, Tesla Inc. (NASDAQ: TSLA) ran from the $880s all the way up to the $1,200s…
Then Avis (NASDAQ: CAR), another car rental company, released EV news. CAR exploded with massive volume.
It looked like the birth of a mini sector — car rental companies adding EVs to their fleets. And it was a setup I wanted to trade.
How to Trade a Parabolic Short
In October 2021, I had my second-best month ever. Check out my recap here.
I made over $330,000 throughout the month. But I still made mistakes with parabolic runners like Digital World Acquisition Corp. (NASDAQ: DWAC).
I was excited about getting another shot, and CAR was setting up for a similar kind of play. It was halting up — from $170s at the open to over $300 by 10:15 a.m.
I could see it was overextended, so I started shorting around $340. It halted down, then reopened.
I covered about a fourth of my position before it bounced.
So far, it was following a normal framework. Once the parabolic move dies, there’s usually a bounce, then a fade off…
Not this time.
I Just Froze…
When a stock hits a new high after a halt down, that’s your risk. You have to respect that.
I didn’t do that. My plan was to cover the rest of my shorted shares under $300. I really thought it would break down, but it didn’t.
The bounce took it right back to its high. It held up and kept holding up. All of sudden, BOOM. We’re at new highs.
I just froze. I broke the biggest rule in the book — not cutting my losses — especially when I had a risk set.
That’s how you keep yourself as safe as possible with parabolic shorts … and I didn’t.
The Wrong Way to Think About It
At $540, I added another 100 shares to my short position.
I told myself, “If it breaks $550, I have to cut it. I have to be out. No ifs, ands, or buts.”
It would have been my new biggest loss ever. But I got lucky.
It started panicking and halting down. And I was actually pretty patient with it. I saw how choppy it was on the way up. So I held on through some bounces.
I ended up covering it all around VWAP. I turned a new biggest loss, unrealized, into a $3,000+ gain.
A newbie trader might think, “Kyle, that’s great. You avoided a loss and made money.”
That’s the wrong way to think about it.
How to Not Risk Ruin
Cutting your losses is ALWAYS the better option.
That’s how you don’t risk blowing up your account. Your risk/reward will be way better than if you just stubbornly held like I did.
This could have gone to $600, $700 … who knows?
You have to be disciplined with a trade like this. At the start, I was reckless. But when it hit $540, I was prepared to exit with a big loss. I finally drew a line.
I got away with it because the dollar position of the trade was small enough. And because I covered that fourth in the $300s. That saved me.
Learn More With Me, Jack, and Mari in Breakouts & Breakdowns
© StocksToTrade
Like I said before — this is NOT an example of how I want to trade. This isn’t how anyone should trade. So learn from my lessons here. A winning trade isn’t necessarily a good trade.
And if you’re ready for more, I urge you to join me…
I help run a trading chat room called Breakouts & Breakdowns. It’s a StocksToTrade add-on feature. Millionaire traders Jack Kellogg, Mariana Hincapie, and I take you through plays like CAR.
Usually, I’m more disciplined on breakouts! I’m proud of my discipline. I work hard in the gym and in my trading. And I share the scans I run on the StocksToTrade platform to find these breakout stocks.
Trading big gainers like CAR is a skill. Come learn with us. As you can see, we’re still learning plenty. That part of your journey never ends. But getting to share it with an awesome community of traders? There’s nothing like it.
Start your two-week trial of Breakouts & Breakdowns today and join us!
What do you think? How did my embarrassing trade lesson teach you to respect risk? Do you appreciate my honesty? Let me know in the comments!