MichaelGLamothe

Some lessons in managing stops with AAC

NYSE:AAC   Ares Acquisition Corporation
2
AAC not only hit fresh all-time highs today and earned a spot on ChartYourTrade.com's "Gainers on Volume", it also provided us with a great example of how to effectively manage stops using moving averages and potential areas of support.

At the onset of a trade, I typically like to give it very little room. I’ll set a stop slightly below support and key moving averages (what is considered key will depend upon the stock and the behavior of its price action). As the trade progresses, I’ll generally use the 10ema as a guide, selling on a close below the 10ema. Once I have a significant gain (typically 25% or better) I’ll begin considering allowing a test of the 21ema.

Hard stop placement generally becomes more important and more challenging as the trade progresses. There is a balance between when to lock in profits, and what is “giving up too much”. Unfortunately no one can answer these questions for us. It takes a considerable amount of self-analysis to know what we’re comfortable with and how to trade what we’re comfortable with. For me, keeping a hard stop resting at 36.43 makes the most sense since allowed tests of the 21 and 50dmas as well as 2 lower lows.

On Thursday, AAC closed below the 10ema but rebounded off its lows and closed above the 21ema and within 34% of its daily trading range. Generally 40% or better is considered support but since the rebound occurred at the 21ema, we could look at Thursday as a support day. Thursday’s low of 37.54 (also the 10wk line) then becomes the new support.

For the week, AAC is working on a very strong positive outside reversal week on heavy weekly volume .

To see the rest of ChartYourTrade.com's "Gainers on Volume" for 6/10/15 click here: http://chartyourtrade.com/2015/06/gainer...