Trade management is one of the trickiest parts of the business. It is for this reason that any chance I can walk someone through an entire trade, I think it is helpful to do so. It is easy to look forward and develop a plan, it is easy to look back and see where errors were made, it’s difficult to plan the trade, trade the plan and be content with the results, whatever they may be.
My personal trading strategy as laid out in TtT is really quite simple. I take an initial position with a quantified stop. The risk amount becomes my profit target whereby I take a partial gain and raise my stop. My goal is to take partial profits while letting a final piece run as long as it can.
On February 17th I took a position in EBAY on the idea of the stock forming a darvas box and my anticipatory read of a pending break out.
Shortly after my buy the stock acted well and moved out of its range, hitting my first profit target and allowing me to sell 1/3 of my shares.
At this point I raised my stop to break even and watched as the remaining shares languished and the stock traded back to my entry level. While the trading plan was sound my dilemma came into play with two issues. The first was that while the stock was trending back towards my break even and thus my stop, the longer term pattern hadn’t changed and therefore I wasn’t too anxious to rid the shares and move on. The second dilemma was in the fact that earnings were quickly approaching. I suspected that this would be the event to either make or break the chart. If I stayed in and not exercised my stop I would be the only one to blame had the stock reacted poorly on the announcement and thus resulted in a winning trade turning into a losing trade. On the other hand, since the pattern was sound, had the stock reacted positively to the earnings announcement, I would have certainly been kicking myself with being completely out of the name despite the pattern remaining in tact.
I settled on a compromise and rather than shed the entire position at my break even I sold another 1/3 and resolved to hold the remaining position through the report. I accepted the risk, adhered at least in part to my disciplined trading plan and was ready to watch the action.
On the earnings announcement the stock reacted positive and thus far looks like a real break out may be coming. In fact, due to the reaction and even better chart, I took the opportunity to add back another 1/3 to the original position and will keep my stop at my original entry level thus allowing the trading plan to either work out, or again stop me out resulting in a small net gain or wash on the entire trade.
Regardless of what would have happened with earnings I would have written about this trading anatomy as I feel it is a perfect lesson in not only remaining disciplined but flexible enough to adapt when the environment mandates it. I’m pleased with my execution regardless of the current profit or profit potential. I set a plan, followed it, made some small adjustments and remain in the stock.
If the market has shown me one thing over the years it is that humility is the only common thread among traders who find success. If you’re not willing to learn each and every day you may as well throw in the towel now.
Trade ‘em well!Read More
Lately my sleep pattern has stunk. If it isn’t the kids waking up with a cough or a bad dream it’s a mental alarm clock messing with my Zzzzs. This morning it was 3:30 and after reading in bed for about 30 minutes I decided to get up and at least be productive. I thought I’d share with you a few of my longer term, favorite stocks. We hold all of these in client portfolios and have for a long time now however none have run to extremes. In fact, most have just started to get moving. Until charts like these start failing and breaking down, I remain long and bullish in this market.
I’ve been watching URBN since the break a couple weeks ago. Since then the stock has been digesting the move and offering up an opportunity on the small retracement. With such a powerful multi-year break, the chart does not suggest immediate failure but rather a strong new trend upward. Initially, I will use $36 as a stop level but will adjust once I see a reversal and a clear pivot. This will be a long term trend trade.
URBN – $41.95Read More
I’ve been a fan and owner of Broadcom (BRCM) for quite some time. See my an in-depth post HERE. Today however I’ve added to the name as I feel it’s a great opportunity to anticipate the trend break as noted on the chart above. The stock is poised for a break and run and with a solid base in place my view is that this name could run for quite some time. With a stop around $40 on the weekly chart I’ve added shares today with a basis of $44.84
Long BRCMRead More