CV Therapeutics
Here I am, paper trading away and frankly not finding anything terribly interesting as my flag trades mostly fail to develop. However, I'm taking comfort from the fact that this is exactly as Guy Cohen has said it will be in this uncertain market.
So my early successes in November where my trading fund increased by 30% during one month have rather petered out with no real movement since then. The good thing, of course, is that the trades I have placed have simply not been triggered either so I have no losses.
On the 27th, Guy's Tradefinder software picked up CV Therapeutics (CVTX) which looked promising. At least it had those positive, thrusting bars that Guy refers to with a succession of lower highs as the price fell away. So I set my Buy Limit and Stop orders as per the instructions and it became the sole occupant of my Flag-Trader watchlist as the others had all faded away.
My main concern was whether, if it moved on up, it could break through the resistance around 1200 from previous high of Sep 08.
This morning I opened up TC 2000 and ran the Update to get the latest data and ran the Flag-Trader Tradefinder again to find any new candidates.
Then I checked my watchlist – and thought that something had gone wrong with the data uppdate as I looked at the CV Therapeutics flag. It took me several moments to realise the stock price had gapped up into the top right corner and I wasn't even looking in the right place.
I bought in at 1185 and it closed at 1542. That's a 357 point gain in one day – or is it? Unfortunately, my joy was shortlived as I realised that by gapping up over my Buy Limit order (a Limit order being an instruction only to execute the trade if it is within the limits I specify, in this case the single price of 1185) the trade would not be executed.
This situation is, in fact, covered in the Flag-Trader instruction CDs. In fact, the only way over it is to place the order during market hours – so although technically effective that would mean having prior knowledge of the coming gap, an unlikely situation, and it doesn't fit in with the relaxed trading style of Flag-Trading.
Looking at the news I see that the company has been the subject of an aggressive takeover offer that explains the jump. I've tried to tie the movements of the preceding days to news announcements but they don't really seem to tie up – and like most private traders, I've got other things to do and don't have the time to go into the detail.
I really don't mind the reason, the fact is that the Flag-Trader method worked well by demonstrating that it would catch a big move like this with minimum time and effort on my part. It was just unfortunate that the move was actually so abrupt that the technicalities of the markets orders would have prevented it paying off.
Reading Guy Cohen's latest Alert for his subscribers I see he has been warning of the current earnings season during which there is likely to be more bad news to be absorbed by the markets leading to unsettled situation. However, he expects things to settle down and then to see some good opportunities returning. If they are anything like this one then I'm looking forward to it.
You obviously don't need many like this each month to generate a decent income from Flag Trader.
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AmerisourceBergen ABC
I think it's time to close out this lesson on the stop loss. The price has moved clearly into profit and I would still have been in this trade if it had not been stopped out by my over-anxious move of the stop right up to the entry point after which I was taken out on 7th January.
The price is now about to come up against the 200 day moving average and there is a Presidential inauguration on Tuesday – so absolutely anything could happen which will have nothing to do with the original circumstances of the trade.
However, note the very nice cup and handle formation which should bode well for the future.
In the meantime, stop loss lesson learned.
AmerisourceBergen ABC
How this flag trade is developing continues to intrigue me. Indeed, is it still to be considered as a flag?
If you recall from the previous post, it was a good looking flag from mid Dec but I was stopped out of the trade on 7 Jan because I had prematurely raised the stop to the entry point. The logic was to prevent losses but the real effect was to take me out of the trade as I was caught by the long tail of the drop on 7 Jan before it was properly developed.
As at todays chart it still looks like I should have stayed with my first decision and left the stop with the known, finite risk just below the low of 3381 on 24 Dec.
Certainly not raised it so quickly to the entry point. That way I would still be in this trade and beginning to make a profit – provided it continues to go upwards. I suppose that answers my earlier question. If it continues upwards then it was a good flag providing a good profit. If not, then it will just have deteriorated again and I close the trade while still above the entry point and with a small profit.
The next question is perhaps the resistance which may be present from the low formed back in mid July. The lesson is not yet over…
The thing that is pleasing me most with my current paper trading excercise with Flag-Trader is the number of times I don't do things – thereby avoiding mistakes, rather than the number of times that I do. Staying focussed on Guy Cohen's directions as well as putting some pretty stringent requirements into the Tradefinder software is helping me to avoid the sort of mistakes I used to make and keeping my money safe.
But this following example was a real lesson I wanted to share with you of a great looking bull flag that went wrong for me and taught me a lesson about my stop loss.
This is Amerisource Bergen recently.
Amerisourcebergen ABC
You can see the great looking flag that developed just after the strong upward bars. So I put my notional paper trade in place and was very pleased when it was triggered as the price suddently took off and things were looking good.
My stop was just below the lowest point of the flag, as per instructions. The gain was not consistently strong with a daily gain/loss/gain so I was a little worried and on the 6th when it showed a second loss on the day I moved my stop up to the entry point. My logic was that this would prevent any loss if the price turned down again.
Next day, I was stopped out as the tail of the low whipsawed me out of the trade. OK, I thought, I had done the right thing because I was still safe and had lost nothing.
Today, it is a different story as the price has recovered strongly and is back on track. So I wish I was still in the trade – but the situation has changed and I know enough to leave it alone.
The lesson I am taking away from this is that although I am being very conservative because I don't want to incur losses, in fact I moved my stop up too far and too fast. A real lesson to learn for a novice trader. I entered the trade with a known risk and it was good enough for the decision at that time. By moving my stop I was actually changing my decision despite the fact that the situation had not really changed.
This is one of the few really good looking flags that I have found in recent weeks (exactly as per Guy's Flag-Trader teachings) so it's an opportunity lost – but a lesson learned.
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