Ever wonder how to get back into a stock you’ve been shaken out of? I might be able to help you. Check out MercadoLibre (MELI) (June 08, 2019)


Let’s look at MercadoLibre ( NASDAQ: MELI ). This stock is close to breaking out here; it kind of did break out a little bit on Friday but then it pulled back, not a lot. But you can see it was up here, demand was essentially absorbing all this supply at $615.00. And then all that supply finally got soaked up by the demand, there is like no more demand. And then the stock traded down by about $10.00 right into the close over the last hour and a half or so. I look at this as a failed breakout, it is still a bullish move but it’s a failed breakout.

I want to talk to you about getting back in. But first just to finish this analysis here, this could still work but this was not a strong close. That kind of means something, particularly when this is right up at resistance. Your best entry, if you are looking to buy this stock, it would be nice if the stock pulls back a bit and gives you an opportunity to buy closer to 550.00 or even the middle band here, even the 20-day moving average, which is about 575.00 or so. Some kind of pullback here; it gives you an opportunity to get into a strong chart but not right at the top; because while this is a strong chart, guys, this is really sloppy stuff here and it’s prone to pull back and reverse at any time.

Look, I have no crystal ball; that pullback and reversal could happen at 605.00 and it could happen at 750.00. This is why you have to have your entries down and you have to understand how to trade this. So just know that as this is high above the 200-day moving average, like 50 percent, any moves are kind of prone to either failure like we saw on Friday or a more modest move before kind of settling sideways, a bit like you got here; you got a nice breakout, a nice gap on earnings but then the stock kind of settled in and then started forming another trading channel, like this channel here.

The stock gaps up here, runs a bit, pulls back here, runs up and then finally kind of forms this channel. So what you would have to do, if you are just looking at this is say, “Alright, MercadoLibre ( NASDAQ: MELI ) breaks out, maybe it goes up to 650.00, maybe not quite that high.” We’ll say 650.00 and then this prior resistance here at about 605.00 becomes support at 605.00. So that is kind of how you have to expect this stock to be trading if it breaks out. If it pulls back that’s a different story, you are buying it closer to the 50.

Now, I want to talk about something that a member asked me about in the forum on Friday and then several others said, “Yes, me too.” It has to do with getting shaken out of a stock and then getting back in. That is something that I say a lot, “You sell your stock for a small loss, you can always buy it back.” But you can’t always sell it at the price that you wished you had of when it first started going against you. And so the question is, Okay, I got shaken out, how do I get back in? I will go back to what I was saying a minute ago, entry is everything. If you have the proper entry then you know where to re-enter.

We will just use MercadoLibre ( NASDAQ: MELI ) as an example here. Let’s say you bought the stock on this little breakout on Friday. The stock went up a little bit and then fell back. You had a super tight stop on and you got shaken out. Okay fine, so you took a small loss on the stock. Well, what was your problem? Your problem was not the pullback. Your problem was, you bought the breakout versus the little pullback, the little sneaky pullback buying at support, so you bought the breakout. Well, your exit has to be consistent with your entry, which is the breakout.

You bought the breakout because you think the stock is going to continue so you buy the breakout. When do you sell? You sell if the breakout fails. You don’t have a stop down here, you have a pretty tight stop here. So you got shaken out of the stock, now how do you get back in? Okay, the first question, do you want to get back in? Don’t get in just because you want to get back at the stock and don’t get in just because a stock starts moving up again. You get back in here after the stock breaks out, pulls back a bit and then, let’s say, it starts to move higher again. You get back in literally as a separate trade not, as a continuation, you get in as a separate trade. If this is not your best move, if this is not your best stock then go trade your best stock. Ditch this thing, kick it to the curb and never look at MercadoLibre ( NASDAQ: MELI ) again.

It has to be a stock that you want to purchase, not that you want to purchase again. Forget about that first trade, it’s done, you’re over, you took a small loss on it, you got shaken out. You look at this stock as a new trade and then if it, in this case, if it breaks out again and you decide, yes, I want to do it, then you buy the stock. I don’t think you have to wait until it surpasses this high here of 218.00, though maybe you do, but it is a new trade. So wherever you are buying it up here you have to set your stop accordingly.

The same deal, you are buying it again, maybe not on Monday, maybe Tuesday or Wednesday if it starts to move up. But you set your stop at that point where, if the stock falls to there you say, “Okay, this is a failed breakout.” And so you are out again. So you have had two trades that you have been stopped out at. You’ve had two breakout buys that have been stopped out at and they just happen to be on the same stock. It is not the same trade twice, it is two trades that just happen to be on the same stock.

Now, if you get shaken out twice maybe something is wrong with your entry. Maybe something is wrong with the stock. Maybe something is wrong with the market. If you get stopped out three times you must never trade this stock again until it is another day, another setup, another time. Getting shaken out twice is not desirable but it happens. It can happen if you are looking for a certain thing. But if you get shaken out the third time you say, “Well clearly I’m wrong. My theory is wrong, my reason for buying.” Maybe you are looking at this stock and it’s farting around up here at 603.00, 604.00, or 605.00, it’s doing this and you buy it two times here and you get stopped out. And then you buy it the third time and you get stopped out. Okay, well maybe the stock isn’t going to go higher, maybe it’s topping. So you need to say, “Okay, I get it, I’m wrong on this one.” Move on don’t look to re-enter.

On the other hand, this is a totally different trade. IF the stock pulls back here, you’re not buying it you’re not in. You saw this breakout on Friday; you’re not buying it. And now the stock pulls back here, here’s the 50, right there. The stock pulls back, you buy the rebound and then the stock knocks you out, okay fine. Again, you took a small loss. A totally different trade and a totally different theory. You were not buying a breakout here you were buying, listen to me I’m giving you pearls here; you were buying a channel. You were buying the bottom of the channel.

You were not buying this knowing that the stock was going to do that. You were buying this because you thought, well, if prior history repeats itself, and it typically does, maybe I will get up to 600.00, 605.00, that’s a good trade for me. I will have a position and then I can watch it up here; maybe the stock will breakout further, maybe it won’t but at least you have a good trade. But it’s a different theory than the breakout and because it’s a different theory than the breakout, your re-entry for getting shaken out is different. But it is the same theme it starts with the entry. Why did you buy the stock?

And by the way, if you don’t understand bases, if you understand entries welcome to Shaky Town you are going to get shaken out a lot, I mean a lot. And it is not because you keep your stops too tight, it is because you have crappy entries. That’s the thing; you have crappy entries so figure that out. If the stock had pulled back here and you are buying it, it rallies up and then it sells off, you got stopped out. And so you are watching the stock and it keeps going down. Okay, well you take it off your list. If you come back to it, it is because you’ve got a different idea for the stock.

On the other hand, if the stock rallies again this is what I would say: I would say, “Okay, the stock needs to regain the 50-day moving average before I get back in. It violated it before, I bought here at the 50, I bought it right here. It violated it and I got stopped out. Now I am looking to re-enter.” I wouldn’t re-enter here at 500.00 looking for a bounce. That is not why you initially bought the stock. Instead, I would watch the stock; first of all, I would hope it doesn’t pullback this far, but you are stopped out of the stock, don’t buy it here. Wait for the stock to get back above the 50-day moving average, then you buy it again and you do the same thing that you did before. You set a tight stop on this stock. Hopefully, which isn’t a method but it is an emotion, hopefully, the stock will do this and it will pay you off. You will make up for the loss you took on getting stopped out.

If instead, the stock does this, you are going to get stopped out again. So you have gotten shaken out twice for two losses. If the stock rallies back up above the 50 and you are not too bloodied and you decide I’m going to buy this stinking thing. I think this thing is going higher. Then go ahead and buy it again and you keep an identical stop. You don’t say, “Well, it was here the first time. Here the second time. I am getting stopped out so I will keep my stop clear down here.” Well yes, you probably won’t get stopped out buy you will lose a boatload of money.

So you keep your stops according to the trade that you are making right now. Not the trade that you made before or the trade that you made before that. This is a brand new trade and it is based on the stock falling a little bit below and then running back up above the 50-day moving average. It’s a separate trade, the same ticker. And again, if this happens to you three times, some would even say twice and that’s fine, but if it happens to you three times don’t let it happen to you a fourth time. If it happens to you a fourth then you just kind of walk away feeling like a fool.

At least that was my experience when I would do this; I would do revenge trading on a stock. Don’t do that. That’s my theory and those are my words on getting stopped out and getting back in. You treat each trade as a new trade and you set your stop according to your theory on THAT new trade. If you can do that rather than revenge trading or getting obsessed with a certain ticker you are going to find out that you are making a lot more money.

Free Chart

Leave a Comment