When is a losing trade a good trade? Let’s take a look at MobileEye (MBLY). (September 11, 2015)
I want to get back to Mobileye ( NYSE:MBLY ). I mentioned this, I think it was the “Chart of the Day” on Wednesday, but it might have even been on Thursday. What I was talking about was this downgrade by Citron Research essentially giving an ultimate price target I think of $10.00, but an intermediate price target of 25.00. My suggestion was don’t fade that trade. In other words don’t say, “Oh well, they’re always wrong.” No, they’re actually not; they’re pretty good. I was saying the pessimism; the downdraft here can give us an opportunity based on a stock that’s just “gone done enough, ” just gone down too far.
My suggestion was you look at this; you see this volume. Go back and watch that video because I know I had a more in depth explanation. But you watch this volume and you what you’re looking for is a trade. Not like, “Oh, I’m going to scoop this up at a bargain price.” We don’t know whether that’s true or not. But you look for a reversal. You look for signs that other people, not you, we’re not “trailblazers,” we’re not Lewis or Clark. You look for signs that other trader’s significant amount of money is soaking up this supply, is taking the stock. And the way you do that is, the way you identify that, the stock closes higher than it opened. There! There’s the key to the kingdom.
When you see a stock that’s closed higher than it’s opened, you know that the advantage on that particular day, or that particular week, goes to the buyers. That’s really, really simple. So my suggestion was, wait for that and then take it for a trade. Well, we got that on Friday. The little bit of a challenge here is that this was the low. The low was $41.00; the stock is up now at $46.00, so that’s over 10 percent. The stock has moved in a day and closed off the bottom by 10 percent. It makes it really difficult to put a stop in because the stock could pullback. So where do you put a stop?
Here’s my suggestion on this, and I’ve go a couple other comments to make. Again, it’s a trade; I’m just talking about trading tactics here. If the stock starts trading above this high here, 46.59, that’s going to take it back above the 200-day moving average, which will have established this as an important low. It’s a lower low than this one but you’re probably going to get a couple bucks of upside move. That’s really all that I can say about this. One other thing, I got an email from somebody; nobody could foresee this pullback here. Well, I shouldn’t say that, I was on CNBC, here, in the morning, and I said that this is going to get ugly. No, this is a sell, not buy opportunity etcetera, etcetera, you want to start selling. By the way you could look it up.
But the point is this type of stuff is difficult to see. It’s difficult to foresee but it does happen. If you place a trade, like lets say I’m giving you this trade, you agree with my tactics. If you place a trade and you’re reasoning is sound. Listen to me I’m giving you pearls and then I’m out of here. If you’re reasoning is sound for buying a stock; you know where your “Oops I’m wrong level is,” and it’s based on something other than like a feeling or mojo. If you make a trade and your reasoning is sound and you wind up losing money on that trade that is still a successful trade. This is called “trading,” it’s not called “winning,” it’s not called “money harvesting,” if only. It’s called trading; it’s speculation. So I want you to keep that in mind.
As long as you have a sound basis for doing what you are doing, you’re like a pilot, you plan you’re flight and then you what? Lets say it together, “You fly you’re plan.” As long as you’re doing that it’s a successful trade. It didn’t make you money but you didn’t get off of your plan. So don’t look at any trade that you lose money on as a bad trade. And this is more important because I’m keeping you out of the “poor house” on this. Just like you should not look at every trade that you make money on as being a good trade. Because it might just be that you traded like crap. You made a very, very, risky, risky move and it just happened to pay off.
That’s your worst nightmare; because now you’re thinking you’re good. Now you’re thinking, “Oh my gosh. I’ve got this whipped. I’m going to always hold stocks over earnings.” So know what your risk is. Have it be an acceptable amount of risk. And then if you lose money, well it was within your levels of tolerance. It was a tolerable risk. But when you start looking at every losing trade as a “loser,” I’m telling you you’re setting yourself up for huge failure, because then you’re also going to be looking at every “winning” trade as a great trade. That is just not the case. We’re “risk managers” here, that’s what we do. If you’re looking to be a “gunslinger,” go to Tombstone or Dodge City, you’re not going to get it here.
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