February 6, 2012
Pandora's box?
What would you do with a Pandora's box of a stock chart?
Pandora (P), has showed wild volatility since IPO. I was stopped out of my technically perfect entry on 12/20 last month at $10.14, and then was too scared of the volatility, and missed the wild 40% run.
Yep, a tragedy. That's the psychology of trading.
Now Pandora is on another run, and I'm worried again that it will crash quickly. The problem with a stock like this is that it is almost too volatile to even use stops. Most 'normal' stop loss strategies will get triggered when a stop is jumping up an down by 3-8 % every few days.
RSI is still at 70, so this rally could still go higher, but the risk of a sharp dropoff is considerable. My broker won't let me sell short this stock, so it's long positions or nothing. I don't think the market really has a clue how to value a company like Pandora.
Pandora (P), has showed wild volatility since IPO. I was stopped out of my technically perfect entry on 12/20 last month at $10.14, and then was too scared of the volatility, and missed the wild 40% run.
Yep, a tragedy. That's the psychology of trading.
Now Pandora is on another run, and I'm worried again that it will crash quickly. The problem with a stock like this is that it is almost too volatile to even use stops. Most 'normal' stop loss strategies will get triggered when a stop is jumping up an down by 3-8 % every few days.
RSI is still at 70, so this rally could still go higher, but the risk of a sharp dropoff is considerable. My broker won't let me sell short this stock, so it's long positions or nothing. I don't think the market really has a clue how to value a company like Pandora.
When should you take profits in an uptrend?
Even though CHKR appears in a consistent uptrend, my trading plan tells me to realize profit if a trade exceeds 1% per trading day. This trade was a profit of 3.3% in three trading days.
What do you think? Follow your plan or let a winner run to the end of the trend?
You can use a trailing stop to let a winner run, but a trailing stop will never get you out at the high. If a stock is moving at more than 1% per day, chances are that you will less than satisfied with the result of a trailing stop
If you use the green line (8 day EMA on this graph) it's a lagging indicator. By the time you've realized the line has peaked, the stock might have pulled back 3-5%. With these decisions, it's all about being comfortable with you trading plan and trading style.
With the sort of swing trades I normally do, when the candles penetrates the upper bollinger band (light brown line) for more than three daily candles, usually a pullback will occur, even if the overall trend continues.
So my rule of thumb for the ideal sell point is the high of the day on the third day when the bollinger band has been penetrated.
I'm following my plan and taking the profit, although I like this trend so will be looking for a re-entry point.
What do you think? Follow your plan or let a winner run to the end of the trend?
You can use a trailing stop to let a winner run, but a trailing stop will never get you out at the high. If a stock is moving at more than 1% per day, chances are that you will less than satisfied with the result of a trailing stop
If you use the green line (8 day EMA on this graph) it's a lagging indicator. By the time you've realized the line has peaked, the stock might have pulled back 3-5%. With these decisions, it's all about being comfortable with you trading plan and trading style.
With the sort of swing trades I normally do, when the candles penetrates the upper bollinger band (light brown line) for more than three daily candles, usually a pullback will occur, even if the overall trend continues.
So my rule of thumb for the ideal sell point is the high of the day on the third day when the bollinger band has been penetrated.
I'm following my plan and taking the profit, although I like this trend so will be looking for a re-entry point.
Some trading notes
1% per trading day is beating the market
If a stock goes up by 1%
With a $5000 investment, 1% is a return of $50
With a $10,000 investement 1%
There are many more opportunities available to make 1% in a day, than there are to make 10% in ten days or 100% in 100 days.
The 1% rule means we trade often, and take profits often. The positive psychology of this has a tremendous impact on our confidence.
Don't use trading stops. If you are thinking about using a trading stop, then your intuition is telling you that your want to take profit, and not stay in the game. So go ahead and take the profit, then reenter the trade with the same stock if it is really still a good opportunity.
If a stock goes up by 1%
With a $5000 investment, 1% is a return of $50
With a $10,000 investement 1%
There are many more opportunities available to make 1% in a day, than there are to make 10% in ten days or 100% in 100 days.
The 1% rule means we trade often, and take profits often. The positive psychology of this has a tremendous impact on our confidence.
Don't use trading stops. If you are thinking about using a trading stop, then your intuition is telling you that your want to take profit, and not stay in the game. So go ahead and take the profit, then reenter the trade with the same stock if it is really still a good opportunity.
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