Trading is tricky. If it weren’t, it wouldn’t be so difficult to extract wealth from the market. This is the reality of the market and we have to accept it and figure out ways around it, states TG Watkins of Simpler Trading.
Part of that acceptance is to balance the risk of losing money with conviction of your setup and messiness of price movements. This is to say that a method for making money from the market is far from perfection and sometimes we have to try more than once to finally get the move we were looking for.
A recent example I have of this is with Farfetch (FTCH). The original setup and reason I went long was always there, but then price moved in such a way that in order to limit risk and protect my money if things went wrong, I exited due to my stop loss getting hit. As is the nature of the market, the very next day FTCH’s price shot up like a rocket and broke out from the range on big volume. Talk about frustration, but this is nothing new to anyone who has spent any time trading. With my experience, however, I generally knew what to do based on how the day panned out.
First, I didn’t chase so I simply waited, not knowing when it may or may not provide me another opportunity. As it turns out, price did in fact come back down to support, held, and then moved up slightly by the end of the day. At this point, price was back on top of all the MA’s and looked the way it had before the prior day’s drop, which took me out.
I had a decision to make since my stop took me out of the trade the day before: Do I go back in since the setup was back on and price was looking decent again? Or do I stay out and risk this being some sort of trap with price failing again?
I decided to take another shot because price had recovered so well from the prior day’s drop, with extraordinary volume, and the stock had the opportunity to go up since price was over the MA’s. This turned out to be exactly the right answer as price ran up over 6% the next day with only a slight sideways move at the prior high. Because of the choppy nature of FTCH, I decided to play it a little safe and took some profit off at the prior high and moved the stop to break even just in case it wanted to pull back yet again. This way, no matter what the stock did, it would be a profitable trade.
With FTCH now breaking out on volume, I will let it move however it wants to move. If there are pullbacks to support in the near future I can look to add more, but otherwise this looks like a good trend to be in, even if it took two entries.
TG Watkins is the director of stocks at Simpler Trading.
