Hi Mike, you have been very generous to answer a couple of my questions in the past, I am hoping you can offer some insight on what I find is a common trading dilemma. I traded the following setup this morning. I went short ANR at 19.95 at 9:47. Briefly my idea was:

1. ANR has been in play the last few days, and has trended nicely. It has been very weak, so a short would follow the larger trend.
2. Of all the 2nd/3rd day plays I was monitoring (CTAS, CAVM, TIBX, KMX) this is the only one doing significant volume.
3. 20 has been a significant level in recent trading, if it fails a move to 19 is possible.
4. The mkt is struggling at 114.50 on the SPYs.
5. My tape-reading skills are underdeveloped at best, but there appears to be a pretty strong offer at 20.

I shorted 100 shares at 19.95 with a stop at 20.11. My target was 19. Obviously the market cooperated and this trade worked quite smoothly, I covered at 19.15. I would be interested in any general thoughts you have about this setup, but what I am most interested in is finding out how you would have gotten out of a trade such as this. I was committed to my plan of covering around 19, not planning to hold this trade for any further move. I covered at .15 which in hindsight is pretty good considering the stock only went to .07. However I certainly considered bidding .05 or .01 to get the full value of this trade. Had I done so I would have made significantly less. Should I be bringing a stop down to protect my profits on this kind of move? My experience has been that these kinds of stops often get taken out on spikes, and the trend resumes. A break of the trendline would have had me covering just above .20. I hate to wait on trades like this for them to reverse because once the reversal happens a lot of the profits are given away. On the other hand I am highly prone to being impatient and covering/selling too soon. If I think a stock can trade to a certain level I ought to be committed to my level and my trade. Perhaps this isn’t the best example because the trendline was so steep, and the break of the trendline was so clean. Obviously the reversal is usually a messier. I find that taking profits on successful trades is the hardest part of trading. What kind of “if/then” scenario would you have for getting out of a trades such as this as it approaches its target. Thanks as always for you time. All your efforts on your blog are greatly appreciated.

Matt

BELLA
We were in this trade on our desk. A newer traders did a nice job of calling it out and helping us with commentary at the 20 and 19.50 area.

When a stock gets close to an important technical support area or the level you think it can trade to you want to pay close attention. Stocks do not always stop at 19. They can stop at 19.10, 19.15, 19.05 heck any price right above 19. As we approach support the risk/reward changes. Our reward become much smaller than from 20 and our risk of giving back our profits much greater.

It was hard to ignore the buying in ANR at 19.20 and 19.15 and 19.10 on the tape. When we see this extra buying, or accumulation, there is more risk of a reversal.  We compare this with bids getting hit quickly and dropping.   19.20 was an intraday level of support. When we broke this price and it didn’t move away aggressively to downside there was more risk of a reversal. See the chart below and recognize that the downmove in ANR was heavily influenced by SPY. As SPY caught a bid at 113 there is risk of giving back your profits.

Your cover was excellent. As a stock approaches your target trade with both hands on the wheel. Watch the tape and if there is doubt of lower prices, if you see some extra buying on the tape indicating ANR could be getting stronger, then cover some. There is no rule that you have to cover all of your position at the same price. At a minimum lighten up and reevaluate. Or get flat.

I prefer covering some and getting flat when the strength is confirmed. So for me this is a get lighter at 10c and get flat above 25c cover. You have to work out for you the best cover for you. But I very much like the idea as a stock approaches your target that you are very flexible to cover, hawking the tape for new strength.

Were you in this trade?  How did you attack it?

Bella
One Good Trade