Thursday, October 12, 2006

A Lesson in Liquidity & Execution

I have to share this with you. If you've been paying attention to my current position updates you knew that I entered a short position on SVN on Monday. You may have also noticed Trader Charlie's question about volume on his comment and read my response to his comment (check out the comments on: Re: Mark I like your BLOG! - Trade Seeker Question...). Good, I'm glad you're paying attention.

Aside the scant volume SVN sees, I followed my trading rules. I got stopped out today and bought back the short sale (sold for $6.73 on 10/9) for $6.708. You must be wondering why I'm excited about getting a mere 0.18% gain (after Cost of Trade). Take a look at this single-day 2-minute interval chart on SVN for today:

The black line is where my stop was located at $6.70 (3 cents better than break-even). And, yes I could have been justified in lowering my stop a couple more pennies based on this intraday chart and bailed once it violated the previous high after all that consolidation/no movement. I actually put some limit orders in to scale out of the position yesterday and today, but I was a little too optimistic and set the price too low to execute. There's a ton of what-ifs. I chose to set my stop at $6.70 and was waiting until I saw today's closing price to adjust from there. Anyway, let's move on...

Notice the volume, it is appalling. I did say I may live to regret this trade because of the thin volume. Given the complete lack of volume when the stock crossed the black line (my stop) I was convinced my order would be filled for a loss and I'd be buying back the stock at the blue line for ~$6.80. However, when I pulled up my Interactive Brokers account, I could see that IB filled my order for an average price of $6.708 (it executed across 3 exchanges, one at $6.70, and two at $6.71) which turned what I was certain was a loss into a gain.

Once again, I'm asking myself: What have I learned? ... Liquidity is good, learn to love it and don't be sucked in my a low volume stock just because it has a few higher-volume days under it's belt. Turn up the volume! The other thing I learned is that Interactive Brokers has terrific execution. Any questions?

1 comment:

Willie said...

Mark,
I am very excited to come across your post.

It's really what I'm looking for: A first hand account by an impartial person who is aggresively and intelligently trying to make money in the stock market.

My uncle introduced me to TMTT a few months ago. If it had come from anyone other than him I would have thought it was B.S. The reason I believed my uncle is I know he makes a lot of money in the market. He's also a retired psychiatrist and in government work overseas shall we say. He does not play around.

He told me it was not uncommon for him to make 50% or more on trades. My background is in financial sales, mostly focused on life insurance, annuties, and fixed rate instruments. Yet, I was always scared of the stock market. We thought 8% was fantastic. So, nonetheless I was intrigued. It just so happened that TMTT was having a free seminar where I live in TN the next week and I attended.

What they were saying made sense, especially backed up by Uncle's experience with TMTT. I didn't have the money or time to invest in the 3 day class at that time, but am going to crawl through broken glass to make the next one in this region.

I look forward to reading about your experiences. Any suggestions, suprises, advice, that you may wish to share with me are very welcome.

Thanks Mark!