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  • Writer's pictureDragostin Kozhuharov

Luck, Big Mistake, Recovery

Luck - 12.03.2020

Second day of continued volatility. The overall sentiment kept being bearish, however I noticed there was a support level that was holding in the morning session on the E-mini SP500. The level was the 2600 handle and I put my limit order to buy just above it. I got filled for 2 contracts long at 2602.25 and quickly closed the trade at 2606.5 for a net profit of roughly 310GBP.

One thing that I was aware of at the time, but didn’t consider – a few points lower, was a level where the market would have traded limit down. This explains why there was strong support just above it. The problem is that had the support not held, I would have been in a situation where I would be long and the market would have a traded limit. Then based on the imbalance between the buy and sell orders on the bid/ask, the market would resume trading and it most likely would have resumed trading at a much lower price.

In summary, what I did was extremely stupid, however it ended up working fine and reinforcing my confidence.

For the remainder of the day I focused on trading oil sticking to the short side. I started shorting it from around 31.825 and kept closing and reopening as the priced moved lower. This increased my profits for the day with another 100 GBP. I did 3 short trades overall, and 2 of them were profitable. After the first profit, I was again focusing more on protecting the profits I had made so far, rather than trying to increase them.

Daily summary:

Number of trades: 4

Number of profitable trades: 3

Largest win – 310GBP

Largest loss – 30GBP

Overall daily profit after comms: 466 GBP

The big mistake 13.03.2020

Remember how I talked about the market trading limit up and limit down earlier?

It was for a good reason.

On this day, I started by doing a trade on 10-Year US Treasury note June 2020. I thought that buying haven might be a better option, than trying to sell risk assets. I ended up buying 2 contracts at 137.078. For those of you who haven’t traded this asset, it could be boring – especially if you are looking to catch a quick price move. In the end I got out of the trade for a small profit at 137.125. The total profit after commissions was roughly 55GBP.

I started looking at SP500 again. This time the market was trading higher – one of these nasty pullbacks that happen in bear markets. I saw a nice place where the market had resistance – below 2600 handle. It had gone up a couple of times trading close to it and then it fell back down. My thinking was that I can do a short trade with decent risk reward, so I sold 2 contracts at market once the price was trading at 2595. I was very happy with myself, because this time I waited for the price to reach my entry level, rather than being aggressive. As soon as I entered, I noticed something strange – the price stopped moving, even though the market was still open for trading at the time.

I should explain that before this mistake happened, I thought that when the market traded limit up or limit down, it was closed for trading. So, thinking that it was a mistake by the broker, I called them. It was a busy time for brokers, so I probably stayed on hold for at least 1 hour. I got connected with a trader at the trading desk, and he explained to me that when markets hits limit up or limit down it is still open for trading, but the traders can only trade at the prices where it halted.

What that means is that had I put in place a limit sell order at the time which someone else had hit with a market order, potentially I would have been able to get out of the trade for a one tick loss. However, me thinking it was a technical mistake and waiting for an hour, meant that there were hundreds of orders on the book before me, so the chance of getting hit was very small.

I asked the trader whether there is anything he could do to get me out, but he said there wasn’t as I was trading on the exchange, rather than a CFD contract. In the end I did put a limit sell, hoping that it will get filled before the market resumed normal trading in the afternoon. In the meantime, I was trying to calculate what my losses would be should the market open 100points higher. I had that as my worse case scenario. I was actually expending it to resume trading around 50 points higher based on the big imbalance between buy and sell limits at the time.

I kept watching the market until the time when it would resume normal trading. I was relieved because roughly 10minutes before the time, the orders started being hit and the imbalance wasn’t so big. I think my sell limit order which would have taken me out of the trade was very close to being hit, but in the end, it didn’t happen and the market opened about 30points higher.

Having read a lot of trading books, my idea was to watch the initial reaction, as a lot of times, the market would come back down, and I would have been able to close at a better price. In the end it started moving sharply higher and I closed the short trade at 2634.75 for a total loss of 3300GBP.

An expensive lesson and the biggest loss I had ever had on a single trade. I had also done a losing oil trade earlier which brought my total losses for the day to 3400GBP.

I was angry at myself because I had made a note to find out where were the limit down levels for the day, as I was close to making that mistake the previous day. I think the thought that the market might hit limit up, didn’t cross my mind and I paid for it.

To make things worse, shortly after I closed my trade, the market started crashing again and went lower than the entry point for my trade. Technically speaking had I stuck to the strategy of waiting a little, I would have had a profit rather than a loss. So, the frustration became even bigger. Thinking about it now, I should have closed the trade immediately when the market opened – then the loss would not have been as big. And as I review it, even though in the end if I had kept it, it would have been profitable, I think that taking the loss was the smart move at the time. It was better lesson in discipline and trading psychology, than praying and hoping that the market would come down.

The Recovery

Seeing the market come down, made me focused and I managed to isolate the negative feeling and start trading well. I kept opening short entries and closing them multiple times. I was looking at intraday resistance levels and managed to win on all of these SP500 shorts with total profit on them of roughly 3300GBP.

Some of it was returned to the market with short oil trade on the main contract for a 390GBP loss. Also, a T note trade for a 225GBP loss.

All of these trades were a little stressful, mainly because I noticed that I was having connection issues – most likely the 4G gigabytes were running out. After these trades were closed out, I stopped trading for the day and for the month. I had to wait for the decent connection, and also had to source a good internet connection for the location, as otherwise trading would have been an issue.

Overall, I was happy to end the day with that. The net result was negative, but the lessons learned were valuable:

1.Always be well prepared before you start trading.

2.Take the loss, rather than speculating on it.

3.Don’t be emotional. Remain focused and trade your best ideas.

Daily summary:

Number of trades: 12

Number of profitable trades: 8

Largest win – 1200GBP

Largest loss – 3282GBP

Overall daily profit after comms: -705 GBP

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