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Monday, April 03, 2006

Making money when the target is not hit

As you know, I always have a target when I enter a trade. Zig Ziglar once said, "how can you hit a target you do not have?".

But, often price does not reach the target. That is why I advocate holding a smaller number of high-quality set-ups rather than a larger number of low-quality set-ups; it allows you to focus on your open positions and monitor price action.

Today provided a great example of trades that - although they did not reach their target - offered good profit potential. It also provided a great example of what I have posted on this blog numerous times in the past...watch the 50% mark between the high (or low) and the Fibonacci extension. If price is going to stall out or reverse before it reaches the target, it will probably do so at that point.

If you look at the chart of RDWR, you can see that I marked the 50% area with a black line. And, you can see that price found support and ultimately bounced off that line. If you monitored the position closely, you should have seen bars nine through twelve failing to penetrate that line and taken appropriate action. At that point, the position was already profitable by $0.75.

ADM broke through the 50% area, but could not rally to the Fibonacci extension. It fell back to test that level several times over a two-hour period, and then broke back below it on the fifteenth bar. It rallied back above it and then collapsed in the late afternoon. At the 50% area, the position was profitable by $0.60.

BHP was similar to ADM. At the 50% area, the position was profitable by $0.50.

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Terrance said...

I just found your blog last week, and I think it is excellent. I like the way you trade, and you have given my another tool to use with this example of the 50% line. Thanks and I hope you have a very profitable week.

Trader-X said...

David sent me this email, and I thought it was worth putting in comments:

"Hi X,

Just a quickie…

1) What was your entry reason for BHP today? Was it entry above the 2nd bar or entry above the 3rd bar? Just trying to understand all your setups!

2) Do you enter if the first bar itself (either 15 min or 30 min) is a hammer?"

BHP printed a second bar that offset the weakness in the first bar and closed at it's high (the first bar also left a small lower tail). I entered on a break of the second bar high. That bar was also a narrow range, inside bar.

I have entered on a break of the first bar, but I try not to make a habit of it...in general, there is just not enough information to base a trade on, regardless of how tempted I am. But, that is just my opinion...

Jim said...

PD was tempting today.

Anonymous said...

JOYG off the 6th or 7th bar was a good trade to the fib ext. Thanks X! B.B.

Charles (San Fran) said...

Good trades. ADCT was a bread and butter that worked well.

Anonymous said...

uic was a good trade

Todd said...

re: 1st bar trades. TEX today. Great blog.