Wednesday, March 28, 2007

This is why Stops Are Important!




I knew yesterday that something was up with APAC - look at the volume that traded yesterday - very high. Interestingly, most of it came late it the day. The chart looks bullish (I still think so) but when you see that kind of volume you never know for sure if it's good news or bad news. So far it looks like it meant bad news in this case, but maybe not: this morning's dip may have been a shakeout before moving higher (we'll have to wait and see). What is for sure is that this is a good example of what can (and often does) happen in thin stocks. They can move very quickly! That's why I point out that you need to be careful if you trade thin stocks.

I entered this stock today based on my setup sheet (just above 4.75) and put my stop at 4.68. Thin stocks like this can move far and fast against you, so while your fill on a stop may slip from your intended price, this shows why it's so important to use stops. I lost, but I didn't lose very much. That is the discipline of trading: keep your losses small and let your winners run.

2 comments:

Fantom said...

What is your stop management for green trades... for example LWSN that popped a little yesterday but light volume, etc- would you sit your stop at break even and let it go or would you try to scalp it earlier than that?

John Gilner said...

If I'm in a trade like LWSN yesterday (presumably entered the day prior) and there was a powerful move past resistance (in this case above the 7.87-7.90 area) I would initially move my stop to BE and monitor closely. When the stock moved up to R2 yesterday, I would take at least part of my position off (in this case I exited all of it). In this case the stock failed to break the 8.10-8.11 area of prior resistance, and was touching the upper bollinger band on the daily chart, so it was a logical place to exit. I will however watch for a consolidation and re-entry as the daily chart looks very good - just a little extended yesterday. Watch EPS announcement also, it's coming pretty soon if I remember correctly.