This is an update to the Short OGE Trading Plan, which is about Trading a Pullback.
Market has broken out below of 31.15 and closed on 02 June 2015 at 30.55.
Since price has decided to break out below, the momentum should carry price lower towards the profit target of 29.00.
Shifting of Stop Loss to Break Even level:
For those who have entered short slightly below $32.00 and are still short, your position should be profitable on paper.
Now we can consider shifting the stop loss to break even level.
The reason is that since prices have already moved well in your favor, therefore shifting the stop loss to break even will effectively minimize the risk of this trade resulting in a loss.
In other words you are turning this trade into a position where it is close to impossible to lose.
It is very much a cardinal sin for a trader to allow a well winning position to become a loss.
Stick to the Plan and Hold your Horses:
It is tempting to take profit now. However if we shift the stop loss to break even, we can really sit on this position and let the market work it's move.
To Quote Jesse Livermore> "Traders] who can both be right and sit tight are uncommon. I found it one of the hardest things to learn. But it is only after a stock operator has firmly grasped this that he can make the big money.”
Taking Profit: $29.00
While the theoretical target is $28, it is better to use a more conservative target of $29.00.
Advanced traders may also look to take profit when (14) is close to reaching the 28. 0000 level.
The is a risk that this is a fake continuation move. If a fake move occur we can consider flipping around, covered in the next point.
Flipping Around if Short Squeezed:
In the event that price manages to trade back above the neckline of $33.00, it will mean that the pattern has failed and the short position will incur a loss.
It is also likely that this failed pattern will lead to a short squeeze move with enough momentum to push prices higher to around $35.50.
Therefore more advanced traders may consider turning around and go long above $33.00 to capture this short squeeze momentum.
Quote on Sitting Tight: Reminiscences of a Stock Operator by Edwin Lefèvre
Double Top: http://stockcharts.com/school/doku.php?id=chart_school:chart_analysis:chart_patterns:double_top_reversal
How to Short a Stock in Pattern Strategy: http://www.simple-stock-trading.com/how-to-short-a-stock.html
Using Levels of Index> for the Trading Professional by Constance Brown, Chapter 1: Oscillators Do Not Travel between 0 and 100.
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