Finding a great stock only to be stopped out can feel like a missed opportunity. But what if the timing, not the stock’s potential, was off? The key isn’t just to sell or accept being stopped out; it’s about smartly determining where and when to re-enter, especially when the stock shows volatility. Here’s a guide on navigating this tricky situation without lowering your stop-loss unnecessarily.
When Timing Is Off
On April 4, 2024, I took a position in CVLT, attracted by its breakout from a first-stage base and its proximity to the EMA-21 line, indicators of a potentially safe buy.
- Initial Strategy: Despite its promising setup, CVLT was not in the ideal buy zone, hinting that my timing might have been off.
- Quick Exit: By April 5, I was stopped out, a stark reminder that even the best-looking setups can falter.
Reflecting on the Exit
Being stopped out with CVLT, still in an uptrend, underscored the market’s unpredictability. My protective stop-loss at 95.32 did its job during a market dip, but it was a bitter pill to swallow.
- Market’s Lesson: A robust setup doesn’t guarantee success, and the market can shift quickly.
- Silver Lining: This experience offered a chance to learn and refine my strategy.
Learning from the Experience
After re-evaluating the situation, I identified several insights and areas for improvement:
- Strengths Identified:
- CVLT’s leading position in its industry.
- High accumulation signals, with a U/D ratio of 2.1.
- Rising institutional ownership, indicating market strength.
- Areas for Improvement:
- The optimal entry point would have been in late January 2024, aligning with a breakout.
- I underestimated the stock’s volatility, which could lead to premature stop-outs.
Strategy for Moving Forward
The journey doesn’t end with a stop-out. It’s about preparing for the next opportunity with a clear strategy:
- Reflect: Analyze the stop-out reason. Was it mainly due to timing?
- Document: Maintain a detailed trade journal for insights and strategy refinement.
- Plan: Carefully determine your next entry point, keeping an eye out for market signals.
Navigating a stock’s volatility after being stopped out is challenging but manageable with the right approach. The focus should be on strategic re-entry, not just clinging to positions through widened stop-losses.
In conclusion, while the experience with CVLT resulted in a -4.29% ROI and an early exit, the lessons learned were invaluable. The journey was less about the immediate loss and more about gaining knowledge for future success.
Do This When You Get Stopped Out of a Good Stock
Discovering a promising stock only to get stopped out can seem like a letdown. However, sometimes the issue lies not in the stock’s potential but in our timing. The real challenge isn’t just deciding whether to sell or accept the stop-out; it’s smartly pinpointing where and when to jump back in, especially amidst stock volatility. Here’s how to navigate these waters without hastily adjusting your stop-loss.
Evaluating Timing Missteps
On April 4, 2024, I dove into CVLT, drawn by its breakout from a first-stage base and its close dance with the EMA-21 line—both signaling a potentially safe buy.
- Initial Misjudgment: The stock, despite its promise, wasn’t in the ideal buy zone, suggesting my timing might have missed the mark.
- Rapid Exit: Barely a day later, the market forced me out of CVLT, proving even the most promising setups could stumble.
Learning from the Exit
The swift stop-out from CVLT, amidst an ongoing uptrend, highlighted the unpredictable nature of the market. My stop-loss at 95.32 activated during a downturn, delivering a hard but valuable lesson.
- Market Insights: Even solid setups can fail, reminding us of the market’s rapid fluctuations.
- Finding the Silver Lining: This setback provided a prime opportunity to refine my approach.
Gleaning Insights for Improvement
Reflecting on this episode, I pinpointed several key takeaways and areas needing attention:
- Identified Strengths:
- CVLT’s dominant position within its industry.
- Strong signals of accumulation, underscored by a U/D ratio of 2.1.
- An uptick in institutional ownership, reinforcing the stock’s robustness.
- Pinpointing Areas for Growth:
- Late January 2024 would have offered a more optimal entry, aligning with a significant breakout.
- I overlooked the impact of the stock’s volatility, increasing the risk of premature exits.
details at a glance
Explanations for the Drawing: The upward purple arrow shows where I bought the stock. The downward purple arrow shows where I sold it.
Green Line 21-day exponential moving average line (see EMA 21 below)
Red Line 50-day simple moving average line (see SMA 50 below)
Black LIne 200-day simple moving average line (see SMA 200 below)
Opening
- Underlying: CVLT
- Date Opened: 4 Apr 2024
- Underlying Price: 101.40
- Stop Loss: 95.32
- Profit Target: 121.68
- Market Outlook: Confirmed uptrend
- RS Rating: 98
- RS Line Trend: Neutral (N)
- Industry Rank: 1 out of 197
- Volume U/D Ratio: 2.1
- Institutional Ownership Trend: Upward (U)
- Position Risk, %: 5.94
- Position Risk to NL, %: 0.27
- Potential Profit (Position), %: 19.80
- Risk to Reward Ratio: 0.30
- Position Size, %: 4.56
- Reason for Opening Trade: “The price of the stock had broken out from the 1st stage base with heavy volume and the price is close to EMA-21, which makes it a reasonably safe buy.”
- Was It an Ideal Buy?: No. Price was not in the buy zone.
- Remarks: “The stock price is more volatile, which means that there might be a need for re-purchasing it several times.”
Closing
- Date Closed: 5 Apr 2024
- Closing Price: 99.00
- Market Outlook at Close: Confirmed uptrend
- RS Rating at Close: 92
- RS Change: -6
- Closing Remarks: “The position was stopped out on a down day. Other than that, the setup seems to be good, and I am looking for a place to buy the stock back.”
Results
- What Went Well:
- “The stock is in the best industry (rank 1/197).
- EPS trend is up, which gives a better potential for the price to go higher.
- The stock is heavily accumulated by the market – U/D ratio is 2.1, which is a lot higher than 1.
- The stock is accumulated by the institutions – Institutional ownership has been rising over the last quarters.”
- Cause of Error/Improvement: “The best time for buying would have been at the end of January 2024. At that time, the stock price broke out of the base. I need to take volatility into account – this stock is a bit more volatile right now. This means that it could be stopped out more easily.”
- Lessons Learned: “Taking volatility into account doesn’t necessarily mean that you need to widen my stop-losses (probably you shouldn’t!). This means that it’s reasonable to write it down in your journal and once you get stopped out, you can read your notes. This gives you more confidence to repurchase the stock. Trading really is more about psychology than anything else.”
- Position ROI, %: -4.29
- Position ROI (Portfolio), %: -0.20
- Position Open Time (Trading Days): 1
- Position Open Time (Days): 1
terms and definitions
EMA 21 Calculates the 21-period exponential moving average, highlighting short-term trends.
SMA 50 Averages the price over 50 periods, showing medium-term trends without overemphasizing recent data.
SMA 200 Averages the price over 200 periods, revealing long-term trends by treating all data equally.
Industry Rank Investor’s Business Daily’s system that ranks industries 1 to 197 based on performance. It guides us in CAN SLIM TRADING towards leading sectors.
U/D Ratio Measures stocks closing up versus down. A ratio above 1.0 indicates bullish sentiment, important in CAN SLIM TRADING.
RS Rating Ranks a stock’s performance on a 1 to 99 scale. I look for at least 85, showing strong momentum and growth potential.
RS Line Compares stock price to the market, plotted as a ratio. We seek an uptrend, indicating outperformance and strong momentum.
Volatility Measures how much a security’s price fluctuates over time. High volatility means large price changes, indicating risk and potential reward.
Institutional Ownership Trend indicates whether the stock is under accumulation or distribution by the institutions.
EPS (Earnings Per Share): A financial metric calculated by dividing a company’s net profit by the number of its outstanding shares. It indicates the amount of profit attributed to each share of stock, serving as a key indicator of a company’s profitability.
Moving Forward
A stop-out isn’t the end but rather a stepping stone to future endeavors. Here’s how to prepare for another go:
- Introspect: Delve into why the stop-out occurred. Was it primarily a timing issue?
- Document: Keep a meticulous trade journal to harvest insights and sharpen your strategies.
- Plan Ahead: Identify your re-entry point with caution, staying vigilant for market cues.
Tackling a stock’s volatility post-stop-out poses a challenge but remains manageable with a deliberate strategy. Focus on a calculated re-entry rather than clinging to positions by widening stop-losses unnecessarily.
To wrap up, my CVLT journey ended with a -4.29% ROI and an expedited exit, yet the insights gained proved to be golden. This venture was less about the immediate setback and more about enriching my trading playbook for future triumphs.
