This week we began with a trade to the upside on QLogic Corporation
(QLGC). The stock came from the Dedicated Trader's Key Level Stocks -
Channeling Stocks.
The research department tagged this as being a stock at or near the bottom of
it's channel (not far from support)!.
One look at the chart below certainly confirms that!
Notice that the stock had, within the past few weeks fallen rather
dramatically from resistance in the low $50's, slowing it's descent as it neared
support in the mid $40's. Monday morning found us looking at a stock which
for all intents and purposes was just waiting for any excuse to begin to rise
once again! Take a look at a couple of clues ... First, the stock
opened HIGHER on Friday morning, the last trading day depicted on the chart to
the left. Easing to the downside slightly, it finally began to build
trading momentum, eventually closing very near the day's high. Closing near the
high for the day can be a very bullish sign, often foretelling a rise during the
next trading session. Additionally, notice the very short term
stochastics (In case you're wondering, I have mine set to 5, 2 and
2). You will see the stock near 'oversold', also very bullish.
As the market opened, we in the trading lab watched this stock with great
interest, having bought 500 shares premarket @ $45.75. The thought was
that if the stock began to pull back even further, we were only on the hook so
to speak for 1/2 the position we would otherwise trade and a tight stop loss
would give us an early exit from a possibly uncomfortable position. On the
other hand, if the stock began to rise, we could then buy the other 500 shares
and trade all 1000 to higher levels for the day's profits! I've included
the day's trading below to show you how the trade progressed from the open.
The stock opened around $45.73 ... acceptable. notice that the price
then began to slide ... unacceptable! By 9:35 am, I had placed a 30 cent
trailing stop to avert any disasters, which is a good idea ... usually.
However, it's ALSO a good idea to make the stop loss cover all the shares you
want to protect. Trading on-line AND teaching a trading lab has a ton of
distractions and somewhere in the process, I FORGOT to move the number of shares
from the default 100 up to cover our entire position! Oh well...
By the time I noticed my error, the stock had slipped to around $45 and I had
been stopped on 100 shares around $45.50 or so. That's when my lack of
attention to detail became very obvious. I considered just pulling the
plug on the remaining 400 shares, but by that time, the stock had started to
recover. Look at the interday chart to the right and you'll see this
happening just prior to 10 am. At that point, I decided that I had become
an unwitting participant in the "stock-wiggle jitters", a condition
which affects most NEW traders. Folks, let me assure you that this
affects even the 'old hands' from time to time. It's always a good idea to
be on guard against this and never consider yourself immune to the emotions
inherent in ANY trading situation.
-- Bob |
