It's March 11, 2008. The Dow has had its biggest gain in over 5 years, rebounding heavily after a report by the feds that they are adding liquidity.

As usual, I tried playing AMD. I realized a paltry gain of $30, buying 300 shares for $6.17 at 10:36 and selling for $6.27 at 11:24 - however I missed a lot of potential gains in this spike. I should have held on for a bit more in gains. $50 would have been the max profit for this particular trade. If you notice, I missed seeing the last big volume spike up to 800,000 that capped off the initial buying spree.

If I didn't have to deal with that pattern day trader rule, I would have likely re-entered at the inflection point you see in the graph below. I find that using a market index or two is very useful as a point of divergence/convergence for an equity price, with the index typically leading except at points of market confusion.

The reason I got out of the AMD trade so early was because of the downtrending index, and I didn't see the second volume spike in that rally until too late. I was too skittish and quick to take profits.

Either way, I should have simply held on to my AMD until late in the day, the gains were quite astonishing. Bear market rally? My potential profit was somewhere around $90. Since I only realized 30 of those dollars, I have $60 of opportunity cost. Therefore I am -$30 for the day. Hopefully, I can stop losing and break even (or more!) at some point.

you gotta have an edge

The opportunity cost represents the edge that I missed out on. If I have a negative profit after factoring in opportunity cost, I have obtained less than half my available edge.

This is on a trade where I didn't lose money - statistically likely to be only 50% or less of my trades. Half of my edge is the bare minimum.

If we assume that I should have re-entered, I left on the table another $75 or more of gains considering my position size. Where's my edge? I barely have a toehold.

The market was out of control today, and on two trades that I saw - only one of which I acted on - I could have made $125. I walked away with less than a quarter of that.

words of wisdom from Brett Steenbarger

Dr. Brett tells us how we cannot equate market movement with opportunity, and to do so leads to wasteful perfectionism.

Although it might appear that I am doing exactly that, I assure you I am not. My primitive trading system, although still in its infancy, provided me with the ability to gain at least some of the available edge out there in terms of the entries that I identified.

I don't expect to participate in every market move, far from it. In this instance however, I had a reasonable belief that there was to be an imminent move, and I did not act on it. This represents true loss of opportunity; in trading, this only occurs when we identify a transition point and fail to act on our ideas.

More wisdom from Dr. Brett regarding 'the edge'.