Hey FF, There are a number of reasons why we sold em' into strength. Primarily because this is a countertrend trade -- the sector is still in a humongo downtrend and we are playing a vigourous fibonacci bounce in being long here. So, you have to get while the gettings' good.
The only advantage of staying long here would be to catch a Monday AM gap which we would sell into. If there is no gap up, we are free to enter at the same (or better) prices if the market conditions dictate a re-entry. If we stayed long over the weekend just to maybe catch a gap up, then we'd be assuming a risk of giving back some profits or maybe even having a loss which is substantial. Many things can and often do happen around the world between the time the US markets close on Friday and when they open on Monday which impacts the oil (commodity) market & the oil business. For example this weekend perhaps a loose statement at the G8 summit...or any casual OPEC statements or pricing/production adjustments...potential corporate earnings warnings Mon AM (domestic or otherwise)... Fed rumors... Bearuns articles...riots in the streets....Monday trading action in Europe... any of those and many more could easily deliver a price shock which spells risk.
And keep in mind our three key watchwords in this kind of market environment are: (stay) 1.NIMBLE 2. NIMBLE 3.NIMBLE.
Good swing trades are hard to come by but when they do, we don't want to overstay our welcome... because there is little follow-thru and often the reversals are swift and sharp or they occur overnight. And here dictates that we TAKE PROFITS when we can, then set back and watch enjoying being flat/nimble, we can always re-enter if it's really compelling next week. So we will be watching these stocks Monday morning and if the sector is shaping up well, we could easily go back into them if the stars line up. However, in the meantime now we're not assuming any risk in the Oil sector which is a beautiful thing! Going back to our "$ at risk" concept right now that is $0... hard to beat that with a stick.
Our money management philosophy also weighs heavily on every exit decision, including this one. Translated to entrys and exits it is the classic 2:1 approach, as described so eleoquently by Landry/Conners/Raschke:
1. Modulate position size - discretionary based on a number of judgement... but generally we put it all on at once (most of the time) vs. pyrmading in
2. Take profits on a piece (scale out; usually a half or a third initially) when profit equals the intial risk (influenced by TA, S/R points too)... and move our stop to breakeven on the rest (taking the remaining risk out of the trade, for the most part. Note: This is done to CREATE INCOME for our account.
3. Manage the remaining portion of the position with trailing stops, and lock in profits in a discretionary fashion when appropriate. Note: This is done to BUILD EQUITY (wealth) in our trading accounts.
So we have a 2-phase, dual-objective overarching exit strategy which is always at work influencing our profit-taking, even on scalp trades. Weighing heavily on our decisions to get out is, whenever we are in positions we have $ at risk so by definition we always want to get out... so we are flat more often than we are in, although we do strike often. Swing trades are simply longer, but we want to keep them as short as possible to minimize risk and hold onto profits.
Hope that addresses your question, Deron and/or Ed may kick in their insights on it too.
-Steve |
