From the Mailbag: BA

Jun 25th, 2009 | By | Category: General Comments, Mike Bellafiore's (Bella's) Blogs
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Yesterday we blogged about a short in BA.  A reader posted this question in response.

Daryn Says:
June 24th, 2009 at 5:17 pm

I was thrilled to see this post today… at least I knew I was looking for the right trades. What would you say to a trader who watched this trade setup and then somehow managed to walk away with a scratch…and by scratch I mean not a single dime. I got short at the .72 and was in the money almost right away. My initial stop was at .81 and the trade was working nicely. However I brought my stop down too quickly (right to my entry point) and covered my short at .72..one freakin penny from the move high. My thinking at the time was that I simply did not want to let what was potentially a .20 winner turn into a loss. Well, I prevented that alright and in the meantime I missed the trade of the day. Very frustrating to say the least and to make matters worse I failed to re-enter as I moved onto other opportunities. I seem to miss these moves all to often as I take quick scalps. This was a case where I planned to play for the larger move and did not take the first .20 the trade offered me, then a bounce occurred and I was shaken out of a great trade! Love you blog…keep up the great work!

Bella responds:

If you were to do this on our desk we would call you a wuss.  Playfully of course.   For us this was a Trade to Hold.  We do not cover a Trade to Hold unless it makes a significant downmove, hits our stop price, or there is a Reason to Cover.  And none of that was present at 72c.

Let the stock breathe.  This was a great set up in BA.   Even a conservative trader would not have entered a stop below 81c.  If your stock makes a significant downmove to, for example, below the whole then you can adjust your stop.  If you see a huge buyer below support, 75c, then you can consider covering.  If the market exploded then this may be a reason to cover.  If breaking news hit then perhaps.  If the seller in BA disappeared then maybe.

And I know exactly what you were thinking in this BA trade.  It was a slow mover.  It was not collapsing below the support level.  Hey sometimes they crack quickly.  This is usually the case below an important support level.  But you also must be prepared for the slow drip.  BA doesn’t have to go down exactly so that you are most comfortable.   And that is what we had in BA.

But let me say you are on the right track.  Do not undervalue the importance of being in a good stock.  And not only that but you were spot on with the level.  Further you are reviewing this trade exactly how you should.  You found a great set up and you are replaying one of your most profitable opportunities.  This is how you improve.  Find the plays that work for you and master them.   If you continue finding great stocks like this and their important levels you will make an awful lot of money in your trading career.  And overall this is excellent work.

Best of luck with your trading! Don’t forget to follow us on Twitter!

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