Being Prepared to Ring the Register

• Posted by Greg Harmon
• on June 17th, 2011

Between 1:15 and 3:00pm Thursday the market dove lower. In some big name stocks it started to look like panic selling. Then at 3:00pm the market promptly found a bid and started moving higher quickly. So did you make money during that melt down? I am sure that not everyone did as there was sentiment on both sides Thursday. But I did. I closed two short positions during that move, and I had no system access. How? Remember before you entered the trade. You had a plan. I have written a lot about protecting gains and and risk management as part of your plan. It’s assumed that you will protect some gains with stop losses or by reducing size along the way. But are you ready to take gains even if you only have a few seconds to do it. Are you ready for a spike? Bracketing your orders can play a big role in taking profits either when a spike occurs or when a move happens when you have to focus on something else for a while. One example from my positions made me some good money Thursday.

Dick’s Sporting Goods, Ticker: $DKS
I had entered into a short position on DKS on June 6th buying July 36 puts at $1.10. My goal was to short it down the the 200 day Simple Moving Average (SMA) and then get out. From the chart below

you can see that it dropped quickly but then found some support at the 35.73 Fibonacci level without touching the 200 day SMA prior to Thursday. In the morning I entered my stop loss and I entered an order to sell the puts if the price of the stock traded below 35.44 the 200 day SMA. From the 5

minute chart below you can see that at 2:35pm the price broke through the 200 day SMA and my puts were sold at $1.65. The price moved lower and bounced remaining below the 200 day SMA for about 30 minutes total and was back above it by 3:05pm. Did I know that was going to happen when I put in the limit order this morning? Of course not. Did I get lucky? Sort of. I had been watching the stock all day prior. But at 1:15 I lost all internet access. Had I been able to continue to watch up until the fall I may have been able to make more money, or I may have been a pig and done not as well. The point is that by having a ‘reward management’ tool in place I got out of the position at a profit at my target, even though I could not pull the trigger directly. Consider using this technique for your trading as well.

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

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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.

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