A Great Trade

Every so often a trader gets a nice looking trade that works exactly as planned. This example portrays a trade I made a few weeks back in $FAS. The chart is only of the general market because it usually is my best indicator of direction of any stock or ETF.

$FAS is the ETF which is 3x the Russel Banking index and one of my favorite ways to make money. It is a leverages ETF and should be traded with a conscience mind of the risk in trading leverage. These can move fast and should be looked at with speculative lense, watched carefully and always traded with an exit plan.

Looking at the DOW chart below you can see two small resistance lines I drew in the AM trading hours. Each followed a pivot from the earliest hours of the day. I like to wait until about an hour into trading before drawing such line, for it seems to me the first 20 minutes of trading are erratic unjustified.

picture-6

I went into $FAS after I noticed the second candle broke above the resistance line I had drawn. This told me the market had flushed out its big orders for the morning and the order books of the floor trades and market makers were more bullish than bearish. Had the industrial average broken back below the resistance line(now new support) I would have considered a hedge, selling out the position, or adding more depending the volume of the breakdown. In my experience when things do not fire off as planned in the beginning there is a good chance I will be wrong for the remainder of the trade.

As is obvious by the chart I held on to the ETF for the remainder of the day. I don’t recall if my object was to hold over night but looking back on my account sheet I took 1.82 on a few hundred shares before closing out the trade.

The objective here is to follow a price point exit if the stock goes in your favor. If the stock moves against you don’t hesitate to close it out. The longer I have traded the more I have come across the importance knowing what to do when a trade doesn’t act as it should. Looking for daily resistance and support can be very profitable for the trader who is looking to scalp or pull a few points out of a short term trade.

Stay hedged, stay happy,

Margin of Safety