Casaubon,
what criteria were used, in your EXTR trade, to keep in you for "the bonus round"?
intelligentspeculator.com
I didn't trade EXTR; I only used EXTR as a good example of something that recently setup this 1-2-3 pattern; back in early 2000 there were plenty of examples :) but wanted something recent so people could relate.
The evolution of the trade frequently plays out in the same way, regardless of the time frame. Stocks, futures, whatever. I have hundreds if not thousands of charts in daily and intraday time frames detailing similar setups and actual trades.
When I sell the break of the marginal new high bar, I'm banking on a possible change in trend. So the plan will be to maximize the return; the moving average based target is just a guide and its typical that the first move will stall there for a while. EXTR didn't and in that case, I'd lower stops but keep them loose enough because of the indications that things are breaking down.
More typically, the first break may even attempt again to reach new highs but more often than not, will fail and my protective stop just above the marginal high (the bar that triggered the trade) will not be closed out. With a stock like EXTR its more likely that I'd have used a 65 minute or perhaps 130 minute chart to reduce the risk imposed by the large daily range.
If its something like an index proxy or stock that I will take overnight positions in, I'll hold until the lower boundary of the range is broken and then evaluate. When that break happens, by definition the trend in that time frame has changed. Its really that simple.
Manage profit - on such a big break, my inclination is always to take profits, because there's almost always going to be some type of reversal that can be used to position another trade. More frequently, the lower boundary will be breached and a rally back into the range might develop; chances are I'd exit and wait for some consolidation pattern such as a bear flag within the lower part of the range - and reshort that.
If I had been in EXTR I'm sure a 50% haircut in about a week would cause me to take profit ;) |
