Forum Archive Index - November 2001
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[sharechat] NPX
Nick,
Thanks for bringing NPX to our attention. This does indeed provide an
excellent example of a stop-loss being hit. I believe this is the first time
that has occured with a featured stock. Not everyone would have noticed this -
well done! I have attached an updated chart below.
Let's analyse your post in more detail.
>>>> Nuplex is in a new uptrend. This was an interesting turnaround in that the
>break of the downward trendline and the start of the new uptrend both occured
>on the same day (23/10/01) Most commonly you get the trendline break first
>(end of the downtrend) and then the new uptrend starting a little later. <<<<
>So far so good, but what do we really know about trends? Only that they start,
>continue for an uncertain period of time, and end. With hindsight we can see
>that this uptrend lasted 18 days. It was, of course, quite tradeable. A
>short-term trader would have made a profit. A medium-term trend trader may
>have had their stop hit (depending on where they had placed it) and would be
>out at 280, with a loss of about 5.5%. A longer-term trader would still be
>holding on, taking some comfort from the fact that the Close was a full 5
>cents above the Low for the day - clear evidence of emerging Buyer support.
>>>> Note the double/triple bottom pattern - these are often a basing
>formation. <<<<< These are statements of fact. Imagine, if you will, NPX now
>climbing steadily to, say, 350. This new low would have formed part of the
>same basing formation. (It is, after all, only 5 cents below). Don't interpret
>support/resistance levels too rigidly. They are perhaps best considered as
>zones. Most of the examples I have been posting have been classical, near
>perfect - it would be unreasonable to expect that in every instance.
>>>> In this case they show good support at $2.85. A stop-loss placed just
>below this level would carry a low risk of being hit. <<<< A low risk. Not no
>risk. You are in control though. A stop placed at 284 would very clearly carry
>a higher risk of being hit than one placed at say 274. More risk of being hit,
>but less costly if it was hit. It's the old story - run more risk and you are
>better off if you are right, worse off if you are wrong. Psychologically, the
>hardest thing is if your stop is hit, you are flicked out, and then the
>uptrend resumes, stronger than ever. Handle it. Whatever you do, do not take
>this as evidence that you should not be using stop-losses as a routine part of
>your system.
Nick, it is important that you do not see having your stop-loss hit as some
sort of failure. It is not. It is what happens when a trade does not work out
in the way you hoped or expected. It is the mechanism you have set up to
protect yourself from large losses. Acting when your stop-loss is hit is a mark
of your maturity, and attests to your discipline as a trader.
Regards,
Phaedrus.
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