introduction
At the end of January, I found the tech stock IDCC interesting. The price had been in a strong uptrend and from November until December even too extended. By January, the price had calmed down and there had been a slight distribution of the stock. This in turn brought the price back down below EMA 21 for a while.
The price caught my attention when I saw it advancing above EMA 21 again. Also, the volatility of the price had calmed down. These were the indicators that made the price action of the stock interesting.
details of the trade
opening
- Underlying: IDCC
- Date: 24 Jan 2024
- Underlying Price: $106.40
- Stop Loss: $99.76
- Profit Target: $127.68
- Market Outlook: Confirmed uptrend
- RS Rating: 92
- Position Risk, %: 6.18%
- Position Risk to NL, %: 0.30%
closing
- Date: 2 Feb 2024
- Price (close): $103.91
- Market Outlook: Confirmed uptrend
- RS Rating: 90
- RS Change: -2
trade summary
- Position Return on Equity (ROE), %: -4.18%
- Position Return on Equity (ROE) as a percentage of the portfolio: -0.20%
- Position Open Time in trading days: 7
- Position Open Time in calendar days: 9
position Opening notes
I opened a position because it was a fairly low-risk trade – I was able to put the position when the price was close to both EMA 21 and SMA 50.
That being said, I don’t consider it an ideal buying point because the price was not in the base.
Position risk was 6.18% regarding the stop-loss price level. The profit target was set 20% above the buying point which means that the risk-reward ratio was approximately 1/3.
position Closing remarks
On the second of February, I decided to close the trade because the price of the stock was down 3rd day in a row and also below key moving averages. The drop in the stock price was gradual.
It’s possible that there was no need to sell the shares but the overall point is that the price didn’t go where I hoped.
Summary
What went well?
I bought it at a good place – the price was bouncing up from EMA 21.
Saw a volatility cotraction pattern when bought.
The stock had been in a strong uptrend.
What needs to be improved?
When you trade stocks, look closely at how often a stock finishes higher than it starts. A good sign is when a stock has more up days than down days, showing that investors feel confident about its future. This trend suggests the stock is heading up, making it a good buy. Even if a stock has an equal number of up and down days, don’t ignore it if the company’s basics are strong and its industry is doing well. This stability can mean the stock is ready to climb. Keep these tips in mind to make smarter trading decisions.
Lessons learned
- Price patterns often have gray areas. In this case, the price didn’t sharply fall below key moving averages; it hovered there. This doesn’t necessarily signal a broken uptrend. When stopped out, it’s crucial to monitor subsequent price actions. I find it useful to set a price alert at the level where I’d consider owning the stock again.
- Choosing the best-performing stock in an uptrend market doesn’t guarantee a successful trade. In an uptrend market, choosing the top-performing stock doesn’t ensure a successful trade. Past success doesn’t guarantee future performance. Market dynamics can change suddenly. To trade successfully, we always need to consider risk management, fundamentals, and current market conditions, not just past stock performance. We also need to be aware of the fact that even if we do everything correctly, there is a possibility of error.
conclusion
Stock trading is a meticulous endeavor where success cannot be solely reliant on past stock performance, especially in an ever-changing market landscape. The journey of trade involves careful consideration of various factors, including risk management, market fundamentals, and the current economic environment. Even when executing trades meticulously, one must remain aware of the possibility of unforeseen developments.
In stock trading, the devil truly lies in the details. To thrive in this dynamic arena, a deep understanding of the intricacies is indispensable. Remember, knowledge is the cornerstone of success in stock trading, as it empowers us to navigate the complex terrain of financial markets with confidence and precision.
