A Trade A Day

I want to give you an example of why you do not swing for the fences. This example should make it very clear how important it is to maintain a strict risk management plan, and how the best setups can go wrong very quickly.

Case in point Walmart:

Walmart has all the fundamental economic reasons for the stock to tank. A recessionary economy will stifle consumer spending. The weak dollar will make their cost of doing business with overseas firms more expensive. The cost of transportation will eat into their margins as oil continues up.

Walmart also had some excellent technical reasons to short the stock.

1. The stock was below its 200 SMA
2. The stock’s short term downtrend was supported by overall market direction.
3. The stock was forming a bear flag which provided a low risk entry point.

Today the stock gapped above what I would have considered for a stop. It’s these kind of insane, unexplainable market movements that remind a trader to use risk management. For me, I use R multiples. Whatever your risk management plan, stick to it and resist the temptation to swing for the fences.

BTW, There were a couple indications that this trade was suspect.

1. The break down from the bear flag was on low volume.
2. Price moved back into the flag formation.(The best trades move and never look back).

See you Tomorrow!

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