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!

Bottom line: YOU HAVE TO GET INTO THE MOVE BEFORE IT HAPPENS...NOT AFTER!

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