Everyone has a different opinion about the answer to this question. I have learned that any day can be the right day to begin a trade or investment. The real question is how to limit the risk. This goes for Long and Short investments.
Why didn't you buy AAPL at $80? Did you think it had jumped too much after the $5 gap up?
This gap up was nice for current owners of AAPL. But it may have been a turn off for anyone thinking about getting in. Turns out it was a great opportunity...
Let's go through the chart.
Circle 1 - Price crossed above the red downtrend line when it gaped up. If you bought AAPL here, you could have set a stop at $80 and been off to the races.
Circle 2 - Price crossed above the red downtrend line. If you bought AAPL here, you could have set a stop at $89.50 and been off to the races.
How do you know when to get out of an investment? Should you sell everything? Just a portion? It's your call...
All I can tell you is I like to use an uptrend line to help make my decision. The original uptrend line that touches the low of day one after the gap and the lowest price in circle 2 is the uptrend line I drew. Problem is the price closed below my uptrend line on August 5.
Now in this case, the price only dropped $3 - $4 before turning positive again. But there was just as much of a chance that the price could have dropped much more. I believe in protecting profits. So selling a third or half was a good decision at this point.
Once the price turned back up, I adjusted my uptrend line lower and used that for a place to sell the rest.
On the topic of "adjusted trend lines"...
If you have profits and you are willing to risk them then go ahead and make "small adjustments". The adjusted uptrend allowed for even more profits. What is the downfall to adjusted trend lines? They may lead to smaller gains or eventual losses if you are not careful.
If you don't have profits, don't adjust trend lines! Get out when you said you were going to. Honor your stops.
Circle 3 - Price crossed above the red downtrend line. If you bought AAPL here, you could have set a stop at $93.25 and been in a good trade.
** Now realize that there needs to be another "Idea" published to talk about maximizing profits on the way up. This "idea" would be far too long if I included that subject here.
Circle 4 - Price crossed above the red downtrend line when it gaped up. If you bought AAPL here, you could have set a stop at $101.25 and been off to the races. It is also worth noting that the new green uptrend line that starts on this gap up is a steeper line than the adjusted uptrend or even the original uptrend. So the price is rising faster than it has in months...
Circle 5 - Price crossed above the red downtrend line. If you bought AAPL here, you could have set a stop at $108.25 and been in a good trade.
Now is the moment of truth. There is no "Circle 6". I can't see into the future so I can't tell you when it will happen.
Anyone who says they can should be approached with caution...
What if you buy now? To me, the most important thing is that you remember the investment is based on an uptrend line. Which means we all agree the price could come back to the uptrend line. Where is the uptrend line now? Yes, it is about $115. Are you willing to lose $3ish (2-3% of your capital) before "finding out" if the price will go back up?
What if you wait? If you wait you are probably saying, "I would rather buy AAPL closer to $115, $116, $117, etc. The good news is you won't lose any of your capital by waiting. Bad news is you may miss out on a great investment or trade. Many investors will tell you "don't chase". Why? Because successful investing is all about managing risk. The risk is at a minimum when you begin an investment close to the trend line.
Trade What You See. Not What You Think, or Feel, or Hope, or ... Protect Profits & Limit Risk
Why didn't you buy AAPL at $80? Did you think it had jumped too much after the $5 gap up?
This gap up was nice for current owners of AAPL. But it may have been a turn off for anyone thinking about getting in. Turns out it was a great opportunity...
Let's go through the chart.
Circle 1 - Price crossed above the red downtrend line when it gaped up. If you bought AAPL here, you could have set a stop at $80 and been off to the races.
Circle 2 - Price crossed above the red downtrend line. If you bought AAPL here, you could have set a stop at $89.50 and been off to the races.
How do you know when to get out of an investment? Should you sell everything? Just a portion? It's your call...
All I can tell you is I like to use an uptrend line to help make my decision. The original uptrend line that touches the low of day one after the gap and the lowest price in circle 2 is the uptrend line I drew. Problem is the price closed below my uptrend line on August 5.
Now in this case, the price only dropped $3 - $4 before turning positive again. But there was just as much of a chance that the price could have dropped much more. I believe in protecting profits. So selling a third or half was a good decision at this point.
Once the price turned back up, I adjusted my uptrend line lower and used that for a place to sell the rest.
On the topic of "adjusted trend lines"...
If you have profits and you are willing to risk them then go ahead and make "small adjustments". The adjusted uptrend allowed for even more profits. What is the downfall to adjusted trend lines? They may lead to smaller gains or eventual losses if you are not careful.
If you don't have profits, don't adjust trend lines! Get out when you said you were going to. Honor your stops.
Circle 3 - Price crossed above the red downtrend line. If you bought AAPL here, you could have set a stop at $93.25 and been in a good trade.
** Now realize that there needs to be another "Idea" published to talk about maximizing profits on the way up. This "idea" would be far too long if I included that subject here.
Circle 4 - Price crossed above the red downtrend line when it gaped up. If you bought AAPL here, you could have set a stop at $101.25 and been off to the races. It is also worth noting that the new green uptrend line that starts on this gap up is a steeper line than the adjusted uptrend or even the original uptrend. So the price is rising faster than it has in months...
Circle 5 - Price crossed above the red downtrend line. If you bought AAPL here, you could have set a stop at $108.25 and been in a good trade.
Now is the moment of truth. There is no "Circle 6". I can't see into the future so I can't tell you when it will happen.
Anyone who says they can should be approached with caution...
What if you buy now? To me, the most important thing is that you remember the investment is based on an uptrend line. Which means we all agree the price could come back to the uptrend line. Where is the uptrend line now? Yes, it is about $115. Are you willing to lose $3ish (2-3% of your capital) before "finding out" if the price will go back up?
What if you wait? If you wait you are probably saying, "I would rather buy AAPL closer to $115, $116, $117, etc. The good news is you won't lose any of your capital by waiting. Bad news is you may miss out on a great investment or trade. Many investors will tell you "don't chase". Why? Because successful investing is all about managing risk. The risk is at a minimum when you begin an investment close to the trend line.
Trade What You See. Not What You Think, or Feel, or Hope, or ... Protect Profits & Limit Risk
