Let’s not kid ourselves. Lot of these technical analyses we as technician perform is not a roadmap to a successful trade. Those trend lines, price patterns, price actions, etc are only an interpretation of what we speculate what the price might do, not necessary what the price WILL do. And when the price does not do what we expect, it is then we need to reassess and adjust our trade. These adjustments are all part of a trader’s trade management duty.
To illustrates, let’s take a look at three stocks that I have discussed on my previous post regarding to possible trade scenarios.
The first one is FANG. We have notice the tweeze price pattern formed after it has broken above the declining trend line. This price pattern is typically bearish and signals a potential decline. Since it held the horizontal support level, we continue to monitor for it to reclaim the level above the declining trend line. When a doji candle appeared after the tweeze pattern and held above the support level, it encourages us to continue to monitor for reclaiming the level above the declining trend line. But as the chart shows, today a major breakdown on the price of FANG took place and it has declined more than 5% in a single session. This price action has invalidated the thesis of a possible upward move toward the previous high. Furthermore, if one was holding a long position into this price action, no questions ask exit should be executed to protect the profits or minimize the losses. If it reverses and gap up above the trend line tomorrow, that will be a new trade with its own setup and trigger.
(click on the chart to enlarge)
The second one is ONVO. The price of ONVO has been hanging on to the rising trend line that forms the triangle. And the apex of the triangle is converging to a point where the price will likely make a directional move where it can go either direction: up or down. Since the market is still in an uptrend, it wouldn’t be wise to go against the market by seeking stocks to go short. Therefore, we are looking at ONVO in the glass half full perspective and wait for a trigger to go long. As it turns out, ONVO made its directional move today and broke below the support trend line. This price action has invalidated the swing long thesis, and the long setup is abandoned. Once again, if the price reverses tomorrow and go through the upper declining trend line, that will require a new assessment, new setup, and a new trigger for a different trade scenario.
The last stock to look at is PRGO. Prior to today, it was forming a bull pennant that has an 80% measured move price target near the previous high in the 159+ level. As one can see from the chart, PRGO declined by more than 2% today and it broke below the supporting trend line of the pennant. Although the present price action still could be looked upon as a potential bull flag, but the trade parameters are totally different than the trade parameters for the bull pennant. Therefore, if one is to continue to monitor this stock for a bull flag swing long, then a new setup and a new trigger need to be established. For a swing trade, the current stop loss level does not provide a good reward/risk ratio unless one uses a fix amount for stop, which I do not believe is a good way to establish stop loss for swing trades since this type of stop is vulnerable to get hit by intraday volatility.
These are the stocks that were thought to have potentials for a long trade, and within a short period of time, our viewpoints got tossed out by the market. And as such, putting our ego aside, we will abide and move on to the next potential trade.
So don’t kid ourselves about how good we are at identifying winning trades. We are only as good as the market make us appear to be. What we can be good at is how well we manage our trades! Good luck on your trades, and remember: Trade what you see and trade what is in front of you!
