DRYS Trade Recap, Tight Stops Can Burn
Posted by Blain Reinkensmeyer
January 9, 2008 at 11:06 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,
Click 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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[...] was the stock which some of you remember I was stopped out of my short position at about $71 just before the stock tanked some 10%+. DRYS stock bottomed at $48.21 on January 16th, [...]