Securities Research Services

Monday, September 15, 2008

Recent Trade Performance

The market has been extremely volatile of late so we thought we would take a look at some of our recent trades to give an idea of what has been working and to show why this environment has been so difficult to trade.

Before we get started we would like to point out an important truism about all markets. If you manage risk properly, profits will take care of themselves.

One of the number one factors in risk management is the idea that you carefully avoid trading against the trend. Bear markets tend to experience strong bounces and they tend to be more volatile than bull markets.

Bounces that occur during market downswings can oftentimes lead to bullish chart set ups. And this is where traders get into a great deal of trouble. Bullish chart set ups that were working during stronger markets tend to be traps during bear markets. Surprises most often occur in the direction of the trend and those who bought into some of the many bullish set ups that emerged after last week's market rally paid dearly today as the market took one of the biggest hits since 911.

We advised readers and clients alike to hold short positions and keep a heavy supply of cash handy last week and so we ended up having a good day today while a lot of others who exposed themselves to too much risk did not.

On to the charts:


EEV is an ETF that trades contra to the Emerging Markets ETF (EEM). We probably exited a bit early but considering the volatility in this market we were happy to lock in our profits when available.


EWW offered clients excellent risk:reward after breaking through support to new lows. We plan to take profit on this short position tomorrow.


ADM offered quick profits and excellent risk:reward.

Now lets take a look at a couple of positions that didn't work out for us and see what lessons we can learn from them:


HBC initially worked for us. After we had a decent profit we lowered our stop loss so that if it did move against us we would lose no money. This is a perfect example of the frustrating behavior that stocks in this current market have offered traders. It offered great risk reward, it quickly moved in our direction, but then it whipsawed and quickly gave back profits.

Lessons learned here are twofold: First, it is important to adjust stops when profits are on the table, and Second, stocks can and do whipsaw in this market so it's important to not get greedy. If you look at EEV you might wonder why we didn't hold this position longer. The reason we locked in profits when we had them is because it's nearly impossible to know which stocks will keep on going and which ones will whipsaw back.


CNI is another perfect example of a stock that started out strong and then turned around in this volatile environment.

So remember, risk management is Job Number One. Trade only in the direction of the trend. Adjust stops after profit is on the table. And lock in profit when it's there because it might not be there very long.


If you would like to receive free stock trades like the ones presented above, simply provide your name and email address in the form above.

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