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.
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.