Stock Trading

BODY Gets Body-checked by Downgrade and Failed Breakout

When breakouts go bad — things can get hairy fast!

A bad breakout occurs whenever price breaks out of a range and then immediately turns around and closes back under the breakout zone.

When that happens you want to watch out.  It could be a serious bull trap.  And the last thing you want is to be caught in the exit doors when the herd is charging.

While $BODY wasn’t a watchlist trade, it was in the portfolio of all time highs I’m watching.

Not good.

Here’s the chart:

Can I get an ouch!

That’s a 45% haircut that’s impossible to get away from because it’s a GAP DOWN.

When a gap down like that happens, it blows right through your stop and you get an exit at the first available opening price — 45% lower!

Not good at all.

The only warning sign that things weren’t going well here is the failed breakout.  But you had to act fast.  With maybe 1 day warning.  That’s not a lot.

In the watchlist, all stocks are held with a -25% trailing stop.  So this was still in the watchlist at the time of the gap.

So it’s a big loss.

Also, another lesson here — never put all of your cash into a single trade.

The all time highs watchlist contains 10 positions.  So if you lost -45% on 1/10 of your equity you have really lost only -4.5% of total equity.  Not good, but it’s not HALF of your equity.

Good luck out there.

 

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