There are many big differences between trading and investing from “inside” the market and doing so from “outside”. When you are sitting at a trading desk and following markets every minute of every day you can be fairly sure that you don’t miss much. When a move looks illogical, therefore, it probably is and you react with the appropriate confidence. On the outside, however, when something is moving in a way that defies explanation one’s first reaction is normally “What did I miss?” That is the thing I keep asking myself when I look at Transocean stock (RIG).
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Regular readers may recall that about a month ago I wrote a piece recommending RIG. At the time the stock was trading at just above $12 and the idea was to buy with a stop loss just below the $11.70 support. If you did so the trade looked good over the next couple of weeks as RIG climbed to just over $13, but then it turned. The stop was hit on Wednesday and under normal circumstances that would be that.
My trading style dictates, however, that when a stop loss level (or a target for that matter) is hit, I re-evaluate the original thesis. I was taught to do things that way as it reduces the temptation to commit what the old hands in the interbank forex market where I started saw as the ultimate sin…averaging a loser. Over the years I have found that to be the case. Once a position is closed the emotional urges that make…
