One of my biggest pet peeves when it came to my personal trading was the holding period. 30 days! That’s an eternity to a person that spends their professional life jumping in and out of stocks second by second. I get it. I understood the rules and if they weren’t crystal clear there was always a Toby in compliance to remind you.
More often than not it was a huge blessing. You focus on your job and not your personal finances. You buy quality names for the long term and you don’t think about it. Honestly, its what I believe in and how I handle my long term finances. It’s also what I recommend to all investors, but it’s also exciting to have some funds set aside to “play”. A little ‘Mad Money’ if you will.
So that brings me to this story. I told you I would share some stories on this blog. Ever hear of Jumia ($JMIA)? Most traders have, but to catch you up to speed in a quick elevator pitch kind of way - apparently it’s the Amazon of Africa! Say no more - let’s play.
So in late July I checked out the chart (above) and liked what I was seeing. It was trending well off the lows and about to break out to its yearly high. Add this to the back drop of a huge market rally and oh, did I mention, it’s THE AMAZON OF AFRICA - I was in.
Like every trade I enter, I ask myself two important questions before pulling the trigger.
What’s the risk v. reward? (Obviously the risk is it could go to zero; don’t be a wise ass like my kid) Better phrased question - does the risk outweigh the reward? In this case - yes. The stock was breaking out on good volume and had a lot to reverse. The stock had IPO’d at $18 a year earlier and may make a run back to those levels. The downside was a failed breakout and a move back towards support at the $8 level over the near term. Let’s check this box - upside reward far greater than downside risk.
What’s my timeframe? 30 days and then re-evaluate. The set up for a nice momentum rally was in place. I should be good for 30 days - what could go wrong?
I bought shares of JMIA on Monday, July 27th at $9.82. (first green arrow) and the stock was off to the races. It closed the week at $15.56. A 58.4% gain in five days. Sweet! On top of that great news, I was off to the bucolic Jersey Shore for a week’s vacation. Life is good.
That Monday shares continued to climb. I was checking the stock price with my toes in the sand. It just hit $20! I wanted to take some risk off the table, but nope - 30 day rule. I couldn't even place a trailing stop to preserve gains. Maybe it was a blessing. A wise man once said, “stocks only go up”, so let it roll! Besides, I had no choice.
That brings us to Tuesday, August 4th. I broke the number one unspoken rule of trading - don’t get cocky. As the market opened the stock continued it’s climb. The stock opened at $21.05 and climbed to $23 (second, green arrow). Then it happened. I turned to my teenage son (yes, the $TSLA kid) and said, “Jumia just paid for this vacation” - TOP!
What had I done? I had upset the trading Gods. It peaked that day at $23.90 and then reversed with a vengeance. The stock closed on the lows at $16.28. As a technician, this is as bad as it gets. Can you say, “key reversal day” or “bearish engulfing candle”? UGH.. but its okay. I’m still up 60%. This was inevitable and the stock needed to digest some of those gains. This is how you rationalize greed - oh, and of course blame the 30 day rule. It’s nice when you have someone to blame for the emotional rollercoaster you knowingly jumped on.
Vacation week ended and the stock stabilized. Still had to hold for two more weeks. This shouldn’t be bad, should it? I get back to the NYSE and check all the news in my work stocks and of course my own. Ohh.. Jumia earnings this week. Yikes - forgot to factor that in to my decision. Pretty dumb considering every quarter I prepared updates to my listed companies about how their stock reacts after an earnings release. You’d think I’d be aware of my on holdings? So I checked to see how Jumia’s stock had reacted after its prior quarterly earnings releases. Oh boy - better buckle up.
That brings us to the OOPS you see on the chart above. Half these speculative stocks didn't need good earnings to justify returns. Sadly in this case and in this quarter investors felt otherwise. Shares tanked on earnings day. The stock gapped down from $16.37 to a low of $11.38. The trade had blown up. Now I’m counting down the days to just get out. I was too emotionally invested and frustrated. It was time cut bait.
The month holding period had now lapsed days later and I was able to sell. I sold for a paltry gain of 56 cents - although 5.9% sounds so much better. I put it in the rear view mirror and moved on. I was happy to see the stock continued to sell off the next few weeks to $7. It was a good out at the time. However, try not to look at the right hand side of that chart. Like a phoenix it rose from the ashes. The stock peaked at $49 in December. I mean what did you expect? It is the Amazon of Africa after all.
I’m not sure exactly what I learned from this trade. In some respects, I’m no different than my kid who I had fun mocking when he got overly excited about his shares of TSLA rallying $200 points in a week. I got cocky and it came back to burn me. Unlike my kid, I had set realistic goals but my time frame prevented me from locking in gains.
Now that I have some freedom to trade at my own pace I am able to lock in gains when I choose. In fact, just this week I bought shares of BTBT. I got in at Monday’s open of $6.68 a share. My goals were clear - it’s a momentum play and an opportunity to make a quick buck. I thought it would run to $8 - a 15% move in a day - and maybe even get carried away and go to $9. I bought it, set my targets and walked away.
As you can see by this chart (green box), it was a good call. I hit my targets and made a great day trade. Or did I? Now look at what happened next… It kept running after I sold it and closed above $10 the day I bought it. It got worse, it ran to $22 in four days. Instead of patting myself on the back, I’m kicking myself and getting mocked by my teenage kid. “You could’ve paid for a nice vacation”, he said. Well, he’s grounded now and I’m left saying - “Damn, I miss the 30 day rule!”
I had set a buy order for JMIA a while back. I was a little shocked when it hit AH on their recent earnings. Suddenly, JMIA was back on my radar. I successfully swung it since then. I am a winner! I know what I am doing! 😀. Then I bought FUBO...darn near the top. I am now back to being a loser.
Didn't know $JMIA existed. So, you were living out the Zac Brown Band's song while working? That's a vacation no no. Lol. Kids have a knack for repeating your own word's to your face at the most opportune time. They call it as they see it.