Forum Archive Index - November 2001

[Phaedrus <Phaedrus@techemail.com>]

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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