Be careful about overstaying your welcome in low-priced volatile stocks, if not managed carefully they will take you out!
Ever bring home leftovers after eating out, CONVINCED you’re going to eat them tomorrow? But then they just sit in your refrigerator getting old and moldy and stinking up your whole house?
That’s what “The Takeout” pattern is all about.
It’s about not closing a position when you should, even though you had good intentions when you bought it. Unfortunately, by the time you actually do do anything about it, it has stunk up your entire portfolio AND your house.
Here’s an example from my very own trade journal. A trade that could have easily become a Takeout Trade if I wouldn’t have done what I was supposed to do.
A couple weeks back I grabbed a trade in $NAK because I noticed that the gold and metals sector was taking off.
Here’s the chart on the day I bought…
I picked this up because I liked the channel and I was looking for an early entry into a possible breakout.
Well, I was right and got a quick move higher…
Sure. I try not to get too pumped by these moves because they are pretty volatile stocks I’m trading and patterns can switch overnight. Plus, I give myself about 10% wiggle room because I’m looking for the really big runs and you have to give those room to grow.
Anyway, fast forward a couple days and we can see that the move did actually fizzle out and go nowhere —
So I did what I always do when trades run out of steam — I closed my position and I moved on. Besides, I think this was supposed to be a 5 day trade anyway.
Still, I did what I had to do.
I followed my rules and I closed and let’s just say that I’m glad that I did because a few days later, THIS happened —
Not only did the position slide all the way back, it then dropped -32%!
And then ANOTHER -16%.
Given the size of my positions, that would have been devastating to my account.
Look, the stock market is the real deal. And it will CRUSH you if you don’t know what you are doing or you don’t have the strength to act when you are supposed to act.
That’s why I look at charts like this every day.
If you trade long enough, sooner or later you will find yourself in a situation like this even if you did everything perfectly. So don’t give the market any other opportunities to hurt your account.
Do what you are supposed to, when you are supposed to and don’t fall victim to Takeout Trades!
Until next time…the market is YOURS!