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In the last editorial I shared with you the entry point into the MIM
long trade. I entered this trade at about .88 cents. In this editorial
I will use the chart of MIM again to share with you some ideas about
Trade Management.
The
first thing for me to decide is whether the trade is going to be held
for a long term or a short term profit. This decision is very important,
as the answer will determine how I will look at MIM's charts. If I
am looking long term then I will want to be looking at the weekly
swing charts. If, however, I am looking at this trade for a short
term gain then the daily swing charts are all I will need to look
at.
We will
first look at the long term option. Here is the chart of MIM for long
term trade management.
Now that I am in the trade and the trade has given me a profit to
a small degree, it is not necessary to accept a loss of any measure.
I have entered this long trade and there is now a higher swing low
in place at .92 cents. This bottom of .92 is very important as it
is the first higher swing low to .81 cents. The benefit of this higher
bottom at .92 is that it gives me a place to start managing my stop
loss. Initially my stop loss was placed below the low of .81. Now
with the higher low of .92 I can bring my stop loss up to place it
below the .92 low. The fact that .92 is above my entry point of .88
is very beneficial as it guarantees that I won't be taking a loss
on this trade, and that is always a comfortable feeling.
As MIM
makes these higher lows I will be progressively bringing my stop loss
up, placing them beneath each higher low as they are confirmed.
In regards
to trade targets. I can see that the 50% level of the run down from
$1.75 to .81 is there at $1.28. This is a price where I will expect
some resistance, possibly even a short term change in trend. If a
change in trend occurs I won't let this change my mind about the trade
being bullish as I am in this trade for the long term. I will let
the swing charts tell me whether or not I should get out of the trade.
If the daily chart starts to turn down from the 50% resistance point
then I will need to watch the MIM weekly chart closely, however, if
my stop is in place on the weekly chart then I have nothing to worry
about.
My first
target is situated at the top of the chart at the previous high of
$1.75. I am looking for this price to be traded through, and then
for MIM to trade on to higher prices.
This
price target may not be reached soon, it may even take as long as
the previous bull campaign did from .67 cents to $1.75, that was 44
weeks. If this is the case then I can't expect to see new highs until
March 2001. However, this is forecasting and it is not the objective
of this editorial. Let price tell the trend and when the trend changes,
know it. This is what the swing charts and the stop losses are for.
If I
were to look at this trade for a short term gain then I would consider
the charts in a slightly different manner. Here is a daily chart of
MIM for us to study.
The swing charts are based on the daily price movements of MIM and
they are very mechanical. With this form of mechanical swing trading,
the swings chart offers me the objectivity that is required to be
consistent in the decision process of managing my trade. The only
subjectivity involved with this mechanical method is deciding which
of the swings to use. Here I am using the EverySwing or the 1-day
swing chart. This gives me the closest reading of the chart to make
my trade management decisions.
I have
made two trades on the short term charts. You will see the entry points
labeled entry 1 and entry 2 with the relevant stop losses labeled
S1 and S2. The nature of trading short term charts is that I get a
lot more trades.
I entered
trade 1 at .875 on the 21st of June 2000 when the previous swing high
of .87 was taken out. My initial stop loss was placed below the most
recent low at .83 cents. This stop was moved up to below the second
higher low of .88 immediately after .88 was confirmed as a low. MIM
then made a good rally to $1.03 before retracing back down to .96.
Once this low of .96 was confirmed I bought my stop up to below this
low. Then another higher bottom at .97 was confirmed. My stops are
placed below this low of .97. The low of .97 remains the swing low
that my stop is placed under, and is later hit. After MIM makes a
rally to $1.04, MIM trades down to .92. Taking out my stop along the
way.
Here
is what this trade looks like.
Enter
MIM @ .875 and Exit MIM @ .965 for a small profit of .09 cents. Buying
1000 shares @ .875 costs $875.00. Selling them @ .965 returns $965.00.
The profit on this trade is $90. This translates to a 10.3% return
on the capital outlay, in only 18 trading days. One thing to remember
is that my risk on this trade was only .05 cents, or $50. So in relation
to my risk the $90 profit is a 180% return!
You'll
notice that I have taken a second trade on MIM. You'll see that my
entry point for entry 2 is above the swing high of $1.04. This trade
is currently alive with my stops below the higher swing low of $1.00.
With this swing low in place I am risking only .055 cents. MIM has
been up to $1.20, representing a good profit. I do not want this trade
to take a loss. I know that the 50% retracement level of the most
recent swing up is at $1.10, so I will be watching MIM at this price
very closely. Ideally MIM will confirm a higher low above or around
$1.10 so I can bring my stops up to a level that will assure me of
no loss.
There
are other tools I could use to illustrate trade management. Tools
like Fibonacci Price Projections or Gann's Range Comparisons. These
tools are designed to identify price levels where I might find that
the chart reacts at. However, for the purpose of illustrating the
mechanical rules of swing trading I have only used the swings for
my trade management. Using the HotTrader software makes Trade Management
a simple procedure. The swings are accurate and therefore highly reliable.
Happy
trading,
Solomon
Thallon
HotTrader, Australia
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