Monster Profit, Monster Slip

FIGURE 1: MONSTER WORLDWIDE, WEEKLY. As you can see, the stock price has been in a long, gentle uptrend since March 2009. The price movements toward the end of April 2010 suggest large movements ahead. This is also supported by the action in the MACD.

On the daily chart (Figure 2), the decline stopped right at the 33% Fibonacci retracement level. The stock jumped on Wednesday, signaling upside potential. It settled lower on Thursday and Friday, giving the impression it was getting ready for another jump. The shallow MACD showed the absence of bears and flashed a buy signal, confirmed by the relative strength index (RSI).

FIGURE 2: MONSTER WORLDWIDE, DAILY. You can see that the pullback stopped right at the 33% Fibonacci retracement level. The price then jumped on Wednesday, signaling upside potential. It settled lower on Thursday and Friday, giving the impression that it was getting ready for another jump. A shallow MACD showed the absence of bears and flashed a buy signal. This was confirmed by the RSI. All conditions lean toward an entry in the following week.

• Entry: I expected negative sentiment from the Goldman Sachs (GS) debacle to carry over into Monday, influencing the general market — and so I was looking for a lower entry, even below the Friday’s bar.

  It looked to me that in case of a lower opening on Monday, the Wednesday or Tuesday lows could get hit. I chose the nearest entry at 15.35 ( 1.6%). On Monday morning there was a second dip after the initial one, briefly touching the 15.25 level — and I was in.

• Stops: I set my initial stop at 14.88 ( 3.1%), just below the rejected low. A tighter stop would not have been wise, considering the possibility that negative market sentiment from GS could push the market lower. If the desired stop level is too far away, one option I often choose is to lower my entry level even further, which proves to be plenty most of the time.

Prices jumped on Tuesday and continued to rise on Wednesday. During Wednesday I considered exiting at this profit level but decided to adjust my stop to the Tuesday high instead, securing a maximum profit at that point.

TRADE REVIEW
Alexander Elder’s comments: Peter’s trade netted more than 8% profit in just three days — a terrific result. At the same time, he left more than half the profit this trade offered that week. Looking at his charts, I see a terrific entry — and a fearful exit. The entry was very sharp and worthy of emulation. The exit, unfortunately, reflected a problem common among traders.

Peter’s entry was very hard-edged. He saw a longer-term bottom being formed but expected weakness from the market’s bearish sentiment. He put in his entry order below the market, prepared to capitalize on the weakness or stand aside if that weakness failed to materialize. As a result, he bought near the low of the week. His exit, on the other hand, was a completely different story.

Looking at the technical signs on the day of the exit, all we see is strength — prices are rising, confirmed by rising moving averages, MACD, and force index. Why sell? It seems to me that the only reason to sell is the fear of a profit slipping away.

We’ve all been there — happy with a profitable trade, but afraid to lose our gain and exiting too soon. Why do we do it?

Psychologists have shown that the fear of a loss is 2.5 times stronger than the desire for gain. This is why fear drives most traders more strongly than greed. The goal, of course, is to be neither fearful nor greedy, but realistic. Peter offers one possible solution — he splits his trade in two and handles one half a little tighter, the other a little looser. Do you have any questions or feedback on this trade? Please post your comments or questions on our Message Boards at SpikeTrade.com.