Sunday, August 1, 2010

Trading requires anticipation...

On the 20th of July, I initiated a position in DTG. The chart below shows where I entered DTG (green arrow) and where I exited (red arrow). On the 20th, I had no idea that the NASDAQ would rise for the next five days and that DTG would also rise and outperform the indexes.

What I did know on the 20th and what lead me to take the trade were the following factors:
1) The markets were attempting to form a higher low and seemed likely to continue bouncing;
2) DTG by virtue of its strong medium term and long term momentum had a chance of moving higher if the markets were to do so;
3) DTG had been trading steadily above the 20 day MA for about a week and half or so for the first time since mid-May and was attempting to form a higher low as were the markets.

So after taking these factors in consideration I decided that at the point DTG was a low risk, high reward trade worth the risk. So I put on one unit of risk @ $46.00 with a stop at $45.00. The markets moved higher as I anticipated and so did DTG until it got to my target were I exited for profits three times larger than what I risked (red arrow).

If I were not anticipating a move higher then I would not have been able to take the trade at that low risk point in time. What usually happens if this; after DTG has already made the move and the stock starts to be widely publicized, inexperienced traders try to enter at the red arrow where most professionals are selling!


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