DRYS Trade Recap, Tight Stops Can Burn

Blain Reinkensmeyer
Posted on Wed 9th Jan, 2008 11:06:06 AM

As I watch DRYS stock real time it has reached my $61 a share target which was originally set yesterday morning. The trade was a DRYS and GNK pair trade I came up with two nights ago. I got my DRYS shares short at $69 with a stop at $60.51, sadly I was stopped out just before the sell off began.

I knew the resistance was heavy at $70, so I figured $70.51 was a good stop point maximizing my risk at just $1.51 for a potential $8 in return. Sometimes being too tight can bite you hard just before the big winner, DRYS topped at $70.91 before turning south. Here is the intraday chart of the last two days showing my entry and exit,

drys-trade-010908.jpgClick to View, Click again to Zoom

You can see my entry early yesterday at $69 even, then how I got stopped out with that quick intraday surge (which was when the market was rallying). From there it was a bit of stabilization for DRYS but late afternoon sell off and today gap down as the stock is down 10% today.

What gets you on these trades are the numbers. If my stop was more loose the $69 to $61 move would have yielded me 11.5% return on my money, but due to the stop I actually ended up with a 2.17% loss.

If anything this suggests not being too greedy. For me to take on a trade I must be getting atleast 3 to 1 on my money with good odds for success. This trade was 1.5 to 8, or some 1 to 5ish on my money. Altering the ratio to even 2 to 8 (1 to 4) would have kept me in DRYS and yielded me the big return.

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