Only five trades into my trading career and I have learnt a good lesson on slippage. When you are trading volatile stocks it is not surprising that your execution price may not be what you desire, especially when getting stopped out.

However, the amount of slippage I suffered on my TOMO trade yesterday (see Trading Summary : 11/10/2005) was significantly larger than I would expect at 26% additional risk loss (eg. An additional $40 on a $150 risk making a total loss of $190).

Was I just unlucky or was there some other contributing factor ? And then it occurred to me … volume.

When I started paper trading I noticed that some stocks would gap significantly at both entry and exit. I mentioned this to Trader Mike and he immediately identified volume as a major contributor. The monthly average volume was low, in the realm of 100k shares. After some adjustments I settled on using a 20-day average volume filter set at 200k shares on both my “Gappers�? and “Unusual Volume�? scans.

Yesterday Trader Mike IMed me to tell me TOMO had gapped significantly in the morning. He knows I am interested in TOMO as I requested a chart analysis on it the other day. However, I could not find TOMO on my scan and quickly determined that I was filtering it out due to its 20-day average volume being around 150k.

So, I altered my filtering criteria and lowered my filter to 100k. Then TOMO showed up and I felt justified I could trade it.

So, I made two mistakes yesterday that resulted in my expanded loss. Firstly, an emotional attachment to TOMO as I hold it in my IRA caused me to consider a stock I normally would not consider, and secondly, I ignored my earlier lessons on average volume.

So, I will put my volume filter back to 200k and I will add a new rule not to trade any stocks I hold in my IRAs until I can develop the discipline to ignore that factor.