Stock Trading

Would You Buy This Breakout? – PLUG

Last week I put up a breakout and asked if you would have bought that breakout and then I showed the result of that breakout.

Today, once again, I am going to put your breakout trading skills to the test.  However, this time I want to do something a little different.

Today I want to put the ending chart up first — and start from there.  So here is the chart.

$PLUG — would you buy this breakout:

plug breakout

Okay, okay — I can almost hear you laughing.

This is a no brainer, right?  The breakout is the circled bar waaaaay down there. If you would have bought that breakout and held to the last bar you would have made a gain of over 700%.

That is a killer gain.

But, the question is deceiving, because from this vantage point of course you would have bought this breakout.

Who wouldn’t?

But if we look closer, we get a different perspective — one that clues us into the nature of how deceiving charts can be — especially when they compress as price moves higher.

So let’s take a look at how that chart looked at the circled breakout date.

plug breakout 3

And here we are — plug on the breakout day circled in the first chart I showed you.

A lot different, right?

See that line that looked so flat and manageable in the first chart? It’s actually an upsloping trend line — compressed flat because price had moved so far so fast.

In fact, price has already moved up over 350% from the May lows.

Also, do you see that easy looking entry bar on the first chart?  That’s really a +60% gain! Would YOU enter that breakout AFTER a 60% gain? Most traders wouldn’t.  I’m almost certain I wouldn’t.

But if you would have you would have been glad, because the next 2 days would have brought you this:

plug breakout 4

A 40% gain and then a 13% gain.

53% in 2 days.

And if you held a little longer than that?

plug breakout 5

Hundreds of percent gain.

Once again though, this chart is playing with us.  Because do you see that calm pullback in December? That’s actually a -25% drop from highs.

Still, if you would have held through that, you would have rocked it.  Because, as you saw in the first chart, price didn’t stop there. It continued much higher —

plug breakout 6

So why do I post these charts? To show you just how tricky it is to actually catch and ride these trades — and to also show you how easy it looks from the sidelines, after the fact.

I cannot tell you how many times I have been in trades like this, only to wash out early, hacked to pieces in the slop before price gets moving — or other times I have taken profits too early and watch price race off without me — or held on too long and watch price crash while I was still on board.

But that’s the name of the game.

I was recently watching True Detective on HBO — amazing show. In one of the early episodes, one of the main characters says to another character — right before beating him up —

A man’s game charge’s a man’s price.

And how true is that? If you want to trade the markets and learn how to trade them well, then I guarantee you, at one time or another, you will be charged a man’s price.

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