Good trade or a profitable trade? (June 06, 2012)
I’m Dan Fitzpatrick at StockMarketMentor.com on Wednesday, June 6th. Let’s look at those couple of stocks that I’d mentioned yesterday, EMC ( $EMC EMC Corp. ) and VMWare ( $VMW VMware, Inc. ). Now, I’ve actually posted in the forum, in the members forum earlier today and this has nothing to do with the EMC ( $EMC EMC Corp. ) or VMware ( $VMW VMware, Inc. ); I was really just talking about trading in general. And that is, that if you manage risk in the right way, in other words, you get off to the right start, it’s a good trade. Whether it’s a profitable trade really depends more on the market than it does you. You know I hate to say it, but it’s true, at least that’s what I’ve found; in other words you can put yourself in the position to make money, based on the move of the market, but the markets not entirely predictable. Some would say it’s really not predictable at all, but what is predictable, generally speaking, is the risk that you take. When you see a move up like we did yesterday, that first bounce; what you have, just to reiterate what I said yesterday, you have the beginnings of a bounce. So you go ahead and make that trade, but you have to have you’re stop in. So, great you make that trade; today you’re up four point three percent, all right wonderful. But, if that stock had not gone up, but instead it had fallen, how much would you have lost? Well, you’d only have lost the difference between where you bought and the top of the box. In other words you’d have been stopped out. The point is this, don’t make so much of these trades where you say, “Wow, you know I really bottomed ticked this thing, I really got in, that was great!” That’s fine, but the market had a lot to do with that. In fact it really had a lot to do with it; The S&P really rallied today. So is it any wonder that some of these trades, you know worked. Similarly with VMware ( $VMW VMware, Inc. ), if we can get the chart up there. You’ve got the same situation where the stock rallied really nicely at the open today and went up three and a half percent; nice profitable trade. By the way I’d be lightening up on both of these positions, I’d just sell them outright tomorrow, because you’ve got the third day of a nice two day rally now we’re into the third day, kind of time for traders to start taking profits, so maybe you want to be on one of those traders. But the whole point is, the setup starts with defining the risk. After that the market and the stock are going to tell you whether you’re going to be profitable or whether you’re going to have a small loss. And of course you know you can skew the odds in your favor by doing some work, and knowing what you’re doing, but at the end of the day it’s market, it’s market driven. Now let’s look at another one real quick here. CenturyLink ( $CTL CenturyLink, Inc. ). The first reason I always look at this stock is this; seven point eight percent dividends, it’s got a nice dividend. Now it was down today on a day when just about everything and his brother, whoever that is, was up; so you can take this stock, you can buy the stock for a low risk trade. How do you do that? You buy it now; if it falls into the box, right down there, which by the way is below the 200 day moving average, which has held it over the last three days, actually four days if you can include today. You get stopped out first, for a small little loss, by taking this stock right here. If, on the other hand, the stock bounces; then you look really, really smart for taking the stock on the pullback. Okay, so that’s how we manage our risk; we set ourselves up, we put ourselves in the position to make a good profitable trade; but a good profitable trade starts with making a good trade. Okay, members get over to the Strategy Session now. Free Chart