Rules Are Not Meant to be Broken

It is a great feeling when you discover a set up that is off the radar. Money. An undiscovered beauty ready for the picking before the momentum world can notice. Get in and let them fire you higher. The hardest thing to do with one of these is to watch it take off without you. A stock that you researched, found had a great set up, and prepped for that had not been discussed for a long time. This happened to me yesterday in Noranda Aluminum Holding, (ticker: $NOR). Here is a snapshot of the StockTwits stream for NOR from the Sunday night.

No talk about it for nearly 3 weeks before I put it in the Top 10. The reward to risk ratio on Sunday was only 2:1 so I was waiting for a break of the next resistance at 15.12 to enter with a better ratio. The alarm was set for a few cents under 15.12. Just waiting for the trigger to buy. Below is the 5 minute chart of the stock over the last 4 days. The alarm first came at 3:35pm on Wednesday. Too late for me to enter a new trade for the day in a market that has been gapping both ways overnight. At least the trigger did not hit. Thursday morning the stock gapped higher and ran 30 cents higher in the first 10 minutes. Now I was in the same situation as Monday. The reward to risk ratio for the next resistance level was again 2:1. How did this happen?

Rules

Every trader needs to have rules to help them do their job, managing risk. A couple of my rules prevented me from trading this stock. The first is a rule not to enter a new swing position in the last 30 minutes of the day without a really good reason. A stock setting off an alarm, but not triggering is not a really good reason. The second rule is that I watch the first 10 minutes of the day to get a feel for a trend, unless I am looking to exit a position. If NOR did not trigger until 9:41 I would have been on board. But instead I was left to put out a bid and wait for a pullback to the 15.20, where my reward to risk ratio would be close to 4:1. Of course this did not happen. I will keep watching this Friday and beyond for an opportunity but for now it has left without me. These are not my only rules. I have rules about when to exit, how to set stops and position size, and which stocks and sectors to play.

I know other people that would have taken this trade. And it might have been the right thing for them to do according to their rules. But for my rules it was not okay. What would you have done according to your rules? You do have rules don’t you?

(As always you can see details of individual charts and more on my StockTwits feed and on chartly.)

If you like what you see above sign up for deeper analysis and trading strategy by using the Get Premium button above. As always you can see details of individual charts and more on my StockTwits page.

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

blog comments powered by Disqus
Dragonfly Caps Blog