Thirsty Finance Official Blog

Long Stock Trade Closed: TEL

January 22, 2014, 7:20 pm

Initiated just a couple days ago, a long trade in the stock TEL today hit its target.

Closure to a trade

The activity of trading is about accepting a certain defined amount of risk in return for a potential amount of reward. In the long trade initiated in TEL, all signals aligned and the reward-to-risk ratio was favorable, thus the risk was accepted in return for the potential to earn a profit.

Trading is all about stacking advantages in one's favor. These stacked advantages amount to a trader's edge, which makes a pro trader analogous to the house in a casino. Moreover, in trading, any single trade is unimportant. It is the sample size of many trades that stack the same advantages that is important. This trade easily could have been a loser. Even in Las Vegas, the house may lose any single bet, but the house always wins if the gambler plays long enough.

What can be learned from this trade?

Trading is by nature imprecise. Pros care only for rules of thumb -- amateurs and semi-pros concerned with either mathematics or perfection miss the point, which is to be profitable, not academic.

If a trader set a limit order to take profits at the target, which was $58, at the end of the trading day today, he or she left about $2 a share on the table. So, for this trader, a lesson to glean from this trade would be to not keep resting sell limit orders in the market. However, at this point, with the stock price excessively stretched and a round of amateurs likely to chase price higher at tomorrow's opening bell, the wise move is to sell out and wait and see what happens next.

Again, this one trade is highly unimportant -- what is important is the process of generating a large sample size from the same set-up.

Thirsty Finance Summary of Trades