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Sometimes, we
forget that trading can be more humbling, even, than golf. Not
yesterday, though. Who could have imagined we’d predict the Dow’s
intraday high within a point, only to blow the short trade we’d advised
from that high? That’s what happened, mainly because, when the
trade started to go our way, we lowered the stop-loss by a hair to all but
eliminate the theoretical possibility of even a small loss. Here’s the
way it played out: Anticipating a 100-point rally in the Dow on Monday,
we put out the following recommendation to subscribers Sunday night,
referencing the March E-Mini Dow contract: “The futures look bound most immediately for 12142, a Hidden
Pivot shown in the chart. The target looks not only like a high-odds
bet as a minimum upside price objective, but also a good place to attempt
shorting with a stop-loss as tight as 12151.” The
chart we used to project the high is shown below, and although for
proprietary reasons we have not labeled all of the coordinates employed to
predict the exact top, you can learn how to do this nifty little parlor trick
yourself by taking the upcoming, six-hour Hidden Pivot webinar. For further
information, including a detailed description of the Hidden Pivot Method, click here.
 
Getting back to
yesterday’s price action, the Mini-Dow futures got off to the strong
start we’d expected, and so we opened up an impromptu virtual meeting
room for Rick’s Picks
subscribers to give them precise advice in real time for getting short at the
target. At the time, the Mini-Dow contract had traded as high as 12130, getting
within 11 point of the target. They tiptoed still higher, to 12141 – a
point beneath the target, and that’s where we “declared”
ourselves short. The entry was not merely hypothetical, however, since
someone in the chat room admitted to having jumped ahead of our 12142 offer
with one of his own at 12141.
Missed Coffee Break
From that point
on, the trade should have been managed mechanically to keep risk and reward
in a 1:3 relationship. This implies that we needed the trade to go
in-the-black by at least 30 points before we took a partial profit or
instituted a trailing stop for a single-contract position. That’s
because we had risked 10 points on the initial stop-loss. So far so
good. A coffee break at that point would have been just the thing,
since we’d probably have parked an automated order to stop us out of
the trade if the futures poked above the day’s so-far peak at
12141. Instead, to save a few pennies and ensure we would lose no money
on the trade, even after commissions, if the futures returned to the
day’s highs, we brought the stop-loss down to 12141. The
predictable result was that the futures made one last head-fake
to…12141; then they fell for the remainder of the session. They ere
still falling, albeit gently in after-hours trading around 10 p.m. EST.
The lesson here
is that, if nothing changes, you should stick with your original game plan
rather than second-guess your protective stops. A good way to avoid
having Mr. Market screw with your head, as he did ours, is to avoid looking
him in the eye for too long.
Rick Ackerman
Subscribe to Rick’s Pick
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