The back story: After Friday’s selloff, I was looking for a rebound in oil Monday and bought VelocityShares 3x Long Crude Oil ETN (UWT) – the leveraged version of United States Oil (USO) – setting my stop-loss at $11.88, tight to Friday’s low of $11.99.
After about 15 minutes of a bounce up, UWT slipped for the rest of the day. Late in the day, I was pressed for a decision, whether to keep it or get out. I got out near Monday’s close and took a 4 percent loss.
The lesson: Stick to your rules. I broke one and stuck to one in my UWT trade on Monday.
I got in early, ahead of the confirmation signal I was looking for. On my swing trading, I typically look for an hourly crossover between the 13-hour and 30-hour moving averaged, and we got close on Monday but never quite there. I should have waited.
Once I held UWT, I could have kept it overnight, but hoping and praying for a bounce always strikes me as the worst strategy. Rather than rely on hope, my rule is to take small losses, setting myself up to buy again and make a profit later.
The proof: While I registered a small loss on Monday, UWT got hammered on Tuesday, making another new low; hoping and praying would have cost me another 8 percent.
The next move: I still believe oil will move this week, but I’m waiting for that confirmation signal. If we see it, I’m cashed up and ready to get back in; if not, I’ll find opportunities elsewhere, reminded that I’m always a better trader when I stick with my rules.
Jeff Bishop is lead trader at TopStockPicks.com. He runs short-term trading strategies, primarily using leveraged ETFs. At the time this article was published on RagingBull.com, he had been out of UWT since Monday and had no options or orders in it. He was planning to purchase UWT again if he saw the confirmation signal described in the article.