Friday, January 04, 2008

Lessons from Swinging Potash Corp. (NYSE:POT)


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I had done almost everything textbook with my swing trade in Potash Corp. (NYSE:POT).
I entered on a pullback, defined my risk, and wait for the trade to play itself out.

Unfortunately, there is the matter of the exit, and here is where I need more work. I mentioned previously that the current run-up in POT was getting a little bit long in the tooth, and the consolidation of the past few days was not enough to relieve overbought conditions.
I knew all along that I wanted to sell into strength. Well, today, that strength came. I saw price action gap up today, and then it proceeded to bounce around between 148 and 149. A 2point gap means nothing to a stock that can move up to 10pts in a day. So the more I watched the price action, the more I got the urge to just sell and be done with it.
Of course, after I sell, POT proceeds to hit my original price target of 150.
I sold too soon, but the bigger issue is that I didn't let the trade play out, as I did not let this winner run.
It may have been watching the tape too much, and reading too much into every tick. I need to practice watching the tape less often, and instead, let my stops and targets do their work.

I am done with POT for now, but will continue to watch it (along with the rest of the Aggies) for more swing trade opportunities, as there will be plenty of them for this year.


JMJAtlanta said...

Watching the tape can cause fatigue. It can change your attitude to the point where your mind says "just get me out of this trade."

I battle such tendancies by using an extremely close, but logical stop. Here's an example of how it could work:

Okay, I know I want out of my swing long today. At 9:30's open, it gapped up and continued northward. At 10am I put my stop about midway between the open and the current price. My "take profit" order is still there. I'll be happy if either are hit. Every once in a while I glance at the trade. If it continues up, I may move my stop up again. I have never lowered a stop, and I'm still alive because of it.

I can't predict every tick. I often leave stuff on the table. I wish I could squeeze every penny out of my trades. The random elements of the market prevent me from doing so. "Trading in the Zone" by Douglas is a great book that touches on this subject.

Phileo said...


Thanks for the suggestion. I may take some variation of it and incorporate it into my swing trading.
I'm also trying to practice not watching the markets for at least half an hour once I have my stops in place.