Thursday 8 August 2013

The beauty of an ideal Stop


MNKD
Mannkind Corporation

Long 150 Shares @ 7.58, R = $15, limit = $0.10
Covered 150 shares @ 7.48, -1R Day. 
I'm proud of myself for committing to all my rules and not caring where the market goes (no emotions). Obviously it would have been nice to come out on top but the fact that my R was very little increased my comfort. Good Day!



Looking at the image above you can clearly see that MNKD built a resistance at 7.57 pretty much after its gap down from the open of the day. The floor was around 7.47 to be on the safe side and it also tried to dip below that twice within the same time frame. When viewing MNKD on the 5 minute, daily, and weekly I saw a potential buying opportunity at 7.58 with a stop loss limit of 0.10 which would bring me little above the low of the day or support. In addition to that I took the market conditions into consideration and seen an upward trend to support my decision. Once MNKD hit 7.58 it quickly rose to 7.65 but couldn't break it perhaps due to market consolidation. What I wanted to highlight on this trade is how the correct STOP could be a game changer for you. Knowing your stocks High and Low before placing a trade is very effective because it gives you an idea of how much potential the stock has in going both up or down. Furthermore it gives you an idea of what degree of risk you can take and where to place your selling limits if your longing or your cover limits if your shorting. Without this very important information your limits if not placed appropriately may never reach its target. Ultimately leaving you holding on to a consolidating stock if not a losing one.

In my example I had a 0.10 cent stop loss limit which allows me to cover the first half of my position at 7.78 (0.10 x 2 = 1R, where R = $15). The high of my stock was 7.88 just .10 cents away from my first cover position. Not good. Reason, because it would take a while for this stock to reach 7.78 which in turn leaves me with either a consolidating stock at various price ranges or a losing stock and I'm out 1R for the day.

Instead my risk on this trade should have been at 0.06 as you can see around the time I purchase it the floor was at 7.52. And going below the 7.52 would have meant it would have needed to break its trend as indicated by the dark green line on the chart above. So hence, having a price target at 7.58 and a 0.06 risk would have been more ideal and allowing me to cover half my position at 7.70 rather than 7.78. Potentially a better trade overall.



"these are just my opinions and not a buy or sell recommendation. i hold no position in this company nor are they paying me to post this". 

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