Overnight in Europe, before the US market opened, Adecco released news of serious accounting irregularities and the Stock price crashed nearly 40%. The US ADR's opened down nearly $7.00 – also around 40% lower.
Source: Incredible Charts – www.incrediblecharts.com.au
Paul watched his screen as the opening quotes came through. He thought it must have been a mistake. Maybe they had announced a stock split?
He turned on the finance channel and every story was about ADO. It wasn't a mistake – the Stock had indeed fallen that far – he was re-living his worst nightmare. Volume was huge as sell orders flooded the market.
He owned 3000 Shares he had paid $16.32 for, and at the end of trading that day they were only worth $11.70. He was down nearly 14 grand on his first trade…he had lost over 8% of his remaining capital.
What was worse, the Stock had given him absolutely no warning of it's impending plunge. It had just collapsed out of a beautiful uptrend.
Paul's confidence was shattered. He had had enough. He wasn't cut out to be a trader, of that he was convinced. No matter what he did, he lost money. The whole thing was rigged. He went home from work early and pondered his future. Where to now?
He played that series of trades over and over in his mind that night and wondered where he went wrong. He looked at the chart up until that fateful day for hours and then he saw it.
The Stock had not really given him a buy signal, because it had not made a higher low after stopping him out of his original trade.
It had merely had one day down off a higher high, then crashed. He hadn't followed Peter's trading rules and it had cost him big time.
He felt so stupid. If he had followed the rules Peter had laid out for him, he would have been out of ADO waiting for a small reaction that formed a higher low to enter, and would not have had a position when it announced it's accounting problems. He would have saved himself $14,000.
Source: Incredible Charts – www.incrediblecharts.com.au
As it turned out, the open on the day of the crash was as low as ADO traded. It recovered somewhat over the next few weeks, but the damage was done to Paul's trading account and his confidence. It was a bitter lesson, but one that so many traders learn the hard way.
He swore that day to follow his rules to the letter in the future – if he could ever find the courage to enter another trade, that was.
Unfortunately, that was not the last time Paul failed to follow his proven trading system…he still had other lessons to learn.
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