If you bought $PLUG in the last couple days (I’m not sure why you would have) you were in for a rude awakening today, a – 40% crash as the volatile, high-flying stock reacted to an analyst calling PLUG a casino stock — alluding to the fact that investing in PLUG was like gambling.
So there was that. – 40%. Gone. Un-plugged.
Here’s what the chart looked like:
Now, I did not have a position in PLUG, not here, or anywhere along the +1,000% run up over the last couple months. For some reason I just could not jump on board — but I like looking at stocks like this as a learning experience and playing the “what if” game.
What if I did have a position? Where would I or could I get out to avoid this type of crash?
So here are 5 ways I would have avoided this issue:
1. Don’t chase stocks
The first and most important rule here is not to chase stocks higher. If they take off without you, like PLUG did, let it go. There will always be another stock and another trade. Maybe not as huge as this one, but you can be sure there will be others. For more on this check out 5 Things to do When Stocks Take Off Without You.
2. Look for a low volatility entry
If you are going to chase and want to get aboard this fast moving train no matter what, there is a way to do it that will minimize the hurt should something go wrong — and that is look for an area of low volatility — a consolidation.
Remember, my method focuses on breakouts, continuations and new highs.
On fast moving stocks like these the consolidation may only last a couple hours or days, but they do show up. Here they are on the daily chart.
3. Make your trades on intraday charts
If you look at the daily charts you’re going to see a bunch or huge up bars that look impossible to catch. But if you drill down to intraday charts you can see the trading environment is a little more inviting.
Here’s a 5 minute chart. See where you could have caught some nice pullbacks on breakouts?
4. Set a trailing stop
A lot of brokerages allow you to do this now. You can set a trailing stop that will rise as price rises. When price corrects and runs through your stop, a sell order will be issues.
Trouble happens when the market is moving very quickly — you can get filled at a price much lower than where you wanted to get out.
5. Trade via Mobile Phone
Now, there is no way I recommend taking a position is a fast moving stock like PLUG if you can’t monitor it every second of the day from your trading desk — but if you do and then go to work — check your phone for updates and trade from it if you need to.
Listen, stocks like PLUG freak me out a little bit if I’m going to be honest. They run up hard and they crash down even harder. While that can help pile up money in your trading account it can also lead to some very sleepless nights as you hope your position doesn’t gap down and take your profits along with it.
Still, these guys are worth looking for! Why? Because PLUG just ran up 1200% in 3 months. That turns $5,000 into $60,000.00. Not bad for 3 months work. If you had the foresight to buy this last year you would have enjoyed a 7,000% run up.
Of course, you have to be sure to get out before you lose 40% of that!
Until next time…