Introduction
In the dynamic world of trading, every decision counts. From choosing the right moment to enter a trade to understanding the myriad factors that influence market movements, traders constantly navigate through a complex web of information. This blog post delves into the intricate details of a trade initiated on December 28, 2023, shedding light on the thought process behind the entry and evaluating its outcome with the benefit of hindsight.
Trade Entry Analysis
Trade Details at a Glance
- Underlying: ELF
- Date of Entry: 28 Dec 2023
- Underlying Price: $143.76
- Stop Loss: $133.51
- Profit Target: $174.51
- Market Outlook: Confirmed uptrend
- RS Rating: 96, because if this were a school, this trade would be at the top of its class.
- Position Risk: 7.08%
- Position Risk to NL: 0.45%
- Position Size: 6.42%
Decision Factors
- Why This Trade? The decision to open this trade was influenced by several key factors, including:
- CAN SLIM Strategy: Not to be confused with a diet plan, though it might slim down your wallet if not followed correctly. A proven approach focusing on Current Earnings, Annual Earnings, New Products, Supply and Demand, Leader or Laggard, Institutional Sponsorship, and Market Direction.
- EMA 21 Indicator: A bullish signal from the 21-day Exponential Moving Average.
- Market Conditions: An ongoing uptrend in the market created a favorable environment for the trade.
- Relative Strength (RS) Rating: A high RS rating of 96 indicated strong performance relative to the market.
- Entry Point: The stock was in a buy zone, further supported by a Volatility Contraction Pattern (VCP), suggesting a good entry point.
Reflections on the Ideal Buy
Despite the stars aligning, the trade was not considered an ‘ideal buy’, proving that the market is the ultimate hard-to-get partner. As usual, the volume wasn’t high enough. This might be one of the main reasons why many of my trades don’t work out.
Trade Outcome Analysis
Summary of Outcome
- Closing Date: 2 Jan 2024
- Closing Price: $133.43, proving that what goes up must come down, especially in the stock market.
- Market Outlook and RS Rating: Remained consistent with the entry, with a confirmed uptrend and an RS Rating of 96.
- Outcome Remarks: The trade experienced a significant sell-off, with the price breaking below the 50-day SMA and moving into the sell zone, leading to a position ROI of -8.52%.
Successful investors and traders tend to make trading look like a walk in the park. Although, in reality, it is a series of testing and ‘failing’. Failing has to be used wisely to collect experiences for the future.
Evaluating the Trade’s Performance
- Successes: The initial buying decision, supported by the CAN SLIM strategy and EMA 21 indicator, was sound.
- Areas for Improvement: I should have seen the relatively high price volatility in the previous base of the chart. This indicated that it could be a bumpy ride.
Lessons Learned
The Importance of Good Trading Habits
- Consistent use of price alerts is crucial, particularly for monitoring stocks that you have been stopped out of and would like to get in when the time is right.
The Role of Risk Management
- Adhering to risk management principles, such as setting and respecting stop-losses, is essential for protecting investments.
- Risk management also should include reasonable diversification and portfolio stop-loss for the given month.
Understanding Market Signals
- Recognizing signs of potential instability, like excessive price volatility in the base, is vital for making informed decisions.
Conclusion
This trade is another example of a situation where before buying we think that everything is in place and everything should go smoothly.
The trade is showing us the ropes in strategy and discipline. Breaking down what went right (or wrong) and spotting improvement spots can amp up our trading game. It’s like leveling up in a video game but with more graphs and fewer zombies. Keeping our brains on their toes with constant learning, sticking to our strategy guns, and not playing fast and loose with risk management? That’s the secret sauce of trading success.
