Like Crime, It Never Pays To Chase Trades

We are experiencing good markets for those who want to be long, however these markets can move stocks quickly and offer up many trade possibilities so we must be careful not to be careless with our entries. Our methodology here, for the most part, is to trade pullbacks on prevailing trends. So, we wait patiently for those trending stocks to pull back then try to identify an entry when and only when those stocks start to resume that trend. Lets take a look at our recent VALE trade that we initiated on Friday, February 10th. The stock actually bottomed in January of 2016 near $2.13 and mounted a slow recovery that started to accelerate later in October. The advance carried VALE to multi year highs on January 24th of 2017 before it started to pullback, this pullback lasted 11 days and took the stock back to $9.53. At this point we identified $10.25 as our targeted entry should the stock resume its advance and four days later we got what we were looking for as the stock gapped up at the open, albeit 15 cents above our price. The market has a way of screwing up an otherwise perfect entry and we had to decide whether we were going to pay up slightly to get in, which we did, at $10.45. VALE gapped up again the following day trading as high as $11.49; for those who did not enter the stock the previous day it was best to let it go and look for other prey or wait patiently for the stock to eventually set up again. Today the stock pulled back fairly sharply in morning trading to a low of $10.87 making those who chased the stock in the mid $11 range quickly uncomfortable on day one of the trade as they had an immediate loss. Conversely, those who honored their target entry were still sitting with a profit as the stock retraced some of its gains. These types of situations where we are tempted to chase a trade can do irreparable damage to our trading psyche when they immediately go against us. It can be very difficult to watch a stock you’ve been hawking take off without you but it is far worse to forgo your discipline and make this game harder and more stressful than it already is by chasing stocks like chickens with our heads cut off. And never sulk to long after missing out on a trade because sometimes the trades we miss are the best trades we make!



Telecharts 2000

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