It is true that AMLN jumped higher than we expected, but the indicators appear to tell us that the rally will continue for weeks or months. I find it difficult to take profits now. Changes we could make to the trade may include to increase the short position (profit taking) or increase the strike price to $30. To avoid falling in a game of greed and fear, we have only one approach: use the stop loss with a contingency order. Currently, my contingency order is set at $24.95, which was the 50% retracement of the rally 2 days ago. One can simply increase that number to the 50% retracement of the continued rally up to today. In addition, I could speculate the gap formed 2 days ago is a strong support point, so fallinginto the gap would be a bearish indicator, and leaving the trade would be appropriate. I thus set my limit at 26.35, slightly below the top of the gap, which coincides with 50% retracement of the rally so far.
In the chart below, we see common indicators in a daily and weekly chart. The daily chart we see the volume spike that got us interested in this trade in the first place, back in June. Three days ago, we had an even stronger spike in volume and price, and that alone would have triggered my system as well, so I might have argue that entering a position two days ago (rather than exiting it) is the appropriate thing to do. Note also that the 50 dMA (green curve) has crossed over the 200dMA (blue), an event that is considered very bullish by most technicians. the stochastics oscillator is reaching the overbought area, but there are no selling signals yet. All in all, exiting the trade would be the wrong thing to do. Hence, all we can do is raise our stop-loss contingency order.
In the weekly chart, indicators are strong too, however, I DO see a resistance spot at current prices. Look ath the highs of 2003, we are currently testing. A break out above that number would be considered very bullish too. Other indicators are bullish too. The 10wMA (magenta =50dMA) is crossing over the 50wMA (blue = 200dMA), and the oscillator is approaching the overbought condition. A break out is imminent.
Finally, it would be worthwhile comment on the forecast by the Elliotician.com's product RET (Refined Elliott Trader), which was quite accurate in the traget for AMLN. I will keep checking the short and long-term forecast on AMLN, and post a chart, if there is any change.
3 comments:
As Juan mentioned, I would have been the one who would have pulled the trigger as soon as the stock jumped up. Retrospectively, I was overcome by greed and fear.
I always had the target around 30.00 and should have followed with it, but the big jump made me get out.
It was a lesson learnt which I want to share with everyone.
Question for Juan:
-- are u targeting 33.00 before you take the profits
-- in which circumstances will u pull the trigger
Varum
Since you seem to be trading along, please be sure that you use this as an educational experience and learn with me. You are responsible for your own results.
In my experience, I always exit too soon or too late because of my own self doubt. I always end up mad at myself. This is silly, when you make money, you should be happy with having more than you used to have. There is a difference between losing money and losing an opportunity. The second should not matter much, opportunities are there all the time.
Rejoyce! you made money. In the charts I posted, it is clear that the long-term prospects on AMLN are much higher, reaching a maximum possible of about $55. I intend to show (if at all possible) that one can grow a 11K account in a few months. So far, we are fine. Since I have enough cash for 3 more trades, I am in no hurry to get out of AMLN. As I explained today, I intend to raise my stop-loss contingency orders regularly, as the stock reaches new highs. This is, I believe, the only approach to avoiding the pitfalls of fear and greed. I am trying to make the Sarmiento method as objective as possible.
http://homepage.mac.com/paperprofit1/.Pictures/CREE/AMLN.gif
Thanks for the insight and the lessons.
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