Trade The Journey

Trade The Journey

Trade Review

I’m sure everyone is feeling a little more optimistic as the country begins to reopen. States are loosening restrictions hopeful that the vaccinations will provide relief for people both economically and emotionally. I am excited that some sense of normalcy will return. Many experts say we aren’t out of the woods yet with the emerging variant strains.

Some of the population remains reluctant to receive the vaccination for a variety of reasons. When the vaccine became available, I, too, was skeptical and unwilling to be a guinea pig. But when the availability opened for my age group, I decided to take the vaccine. Chairman Powell stated that the virus remains the number one concern of the Federal Reserve.

Although it is doubtful the American Economy will shut down again, with the mutating strains, anything is possible. Inflation is a concern for the market, but the Federal Reserve views this increase as transitory. Before I began reading or studying how the Federal Reserve worked, I honestly believed the government-controlled everything. Now I know they like us, anticipate, although unlike us, they are equipped to do so with the best resources and minds in the world.

As a trader, my primary goal is to concern myself with the charts, but it does help to have a general knowledge of economic conditions. The Federal Reserve could be wrong and as a trader, it is helpful to know how it affects your positions.


I decided to trade REI this week, which is a gas exploration company. On my weekly scan, this stock experienced a day of upward volatility. REI had been a steady downtrend for the last week, and the opening bar last Wednesday took out almost four days of action. I decided to enter with the hopes that REI would continue its momentum.

What I considered:
Large Green bar opening. The daily pattern looked like it was forming a head and shoulders pattern. Since February, oil futures and oil have been in a solid uptrend with a pullback in March into sideways action. The company recently released an announcement detailing its renewed interest in working on the shareholder’s behalf. They also released news on some upcoming projects. What I didn’t consider:
I didn’t plan this trade; I was swayed by the green bar and ignored the recent trend downwards. I did not have a period of observation before jumping into the trade. I also did not consider the sideways action in the oil futures.

 

Entry:
I entered the trade at $2.30, which is a resistance zone. The circles in the graph, highlight the action around $2.30. Looking at it now, I can see that each time REI tried to go above $2.30 it failed. I was careless in my trade entry. I did identify $2.10 as a point to monitor, but that’s about it.

 

Trade Management:
I was in the trade for a total of two days. On the first day, REI didn’t do much to continue the trend upward. REI attempted to move higher, but buyers could not sustain the new price level. The highest it went was about $2.38 on the day I entered. It closed at $2.26 on the day, so I decided to wait for the next day until I closed my position. Trade Exit:
My fear got the best of me. I closed on the low of the day at $2.17. The stock teetered around the low and then bounced higher, closing higher than the previous days’ close. I felt like an idiot because I fell right into the trap.

Even though I knew what to do and what the pattern was likely to do, I still let my fear get the best of me.

What were my options:

Keep the position open and be willing to let the stock move around a little or close the position and be done with the headache.

I suppose it could have gone either way. One idea to consider is that I am looking at the trade in hindsight. I had no way of knowing what the stock would do. It could have fallen like a rock.

One lesson trading teaches you is to accept the results. If I had to choose between adhering to a stop, whether mental or physical or holding onto a position thinking I know the future, I’d choose to adhere to my stop.

Small losses can grow into big losses. It doesn’t take much to erase your trading profits. Once I closed the position, it freed up my mental energy to be channeled toward another opportunity. I was able to identify another opportunity and made another profit that more than covered my losses on the REI position.


Cash-Flow Management Weekly Review:

Because my income fluctuates, I’m liable to experience a cash-flow crunch or windfall at any time. I try to spread my money out by saving a heavier portion in the good times and a lighter amount in the lean times. It doesn’t always work, but it does help.

Some situation is always coming up that requires a large sum of money. My goal is to be great at adjusting to life. The biggest contributing factor to my staying on course is having a plan of where I want to go.

Cash-Flow Management Grade: C+

Reason: Procrastination in eliminating entertainment expenses.

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