I received this email last night about an excellent risk/reward opportunity in PM. The SMB Reader below is asking all the right questions. But I ask you for a fun exercise. Where would you have sold?
Hello mr. Bellafiore,Thank you very much for sharing your trades and ideas in SMB blog. I am reading it every day and it helped me a lot on my way in becoming a trader, as well as your book.I am not sure, that my question is worth to be published in the blog, so I am writing it to you directly.Yesterday I was trading PM. (the screenshot attached)The stock had earnings and on premkt it was trading in a fresh area, so i chose it as my primary stock for the open.I planned to set up a trade to hold in it on the open and hold it to the end of the day, or unless it hits my target $69.On the open it started to pull back (no real selling or massive profit taking), forming one of my favorite setups – pullback after the gap up.It turned back up and buyers started to hold the bid higher.I bought 2 lots at 67.80 when the seller at 79 lifted and set the initial stop at 67.66.I sold 1 lot at my first target which was the HOD.It was really difficult to read the tape there – PM was very choppy, so i decided to manage this position on chart.I decided to close it when i saw PM having problems again in that 68.60s area and a momentum divergence as a confirmation.That was a very difficult trade for me and i am not sure that I was managing it properly.My question is – was it a really good reason to close the position there??What is the better way to manage trades to hold in stocks with deep pullbacks, according to your experience? I mean is it really worth holding the core in such cases or simple reentering pays better?I hope my e-mail didn’t take much of your time. And sorry if I made some mistakes, english is not my first language.PS. I was really happy to see your book in russian, thanks for that.
Bella
4 Comments on “Where would you have sold?”
Great trade. Nothing at all wrong with it IMHO but here are some other options. There was support just under 68.90 on the 5 minute and you might would have sold when that broke — which also coincided with the steeper TL break there. The backtest of those two lines failed and you could have sold then at around 68.75 (and a TL from morning low). Because this was a trade2hold, there would have been nothing wrong with holding until 68.53 either – a 2nd TL break and a 2nd support break.
I like the options here as well. Good thinking.
applying an average daily range from the bottom of the day would project a resistance level around 68.75. i think once price gets to that point it’s not worth giving back too many profits unless the stock is very in play.
One good trade was translated for russian)