Coinstar Gives Us Some Cash…
Just about a month ago, I showed you a way to put some money in your pocket. It was a trading opportunity in Coinstar (CSTR). Some of you collected a nice profit and some of you probably lost money. I’ll tell you what made the difference.
Let me briefly recap the trade idea…
CSTR was about to test the $25 support zone. I told you, “An entry around $25.00-$25.25 would be a great entry. Control your downside risk with a stop loss at the $23.45 level. This gives you $1.55 worth of chart risk ($25.00-$23.45=$1.55). If the trade works in your favor, look to take at least a partial profit around $29. This gives you a nice reward to risk ratio of at least 2 to 1.”
As you can see, we caught a nice bounce in CSTR. It traded up to $30 before pulling back.
Those of you watching the trade know how close it was to stopping out. Our stop loss was $23.45 and CSTR traded as low as $23.49… a mere $0.04 from the exit point.
This brings up some important lessons…
Many of you may have given up on this trade when it traded below $24.
Sometimes these trades hit the support level and turn on a dime. Other times they’ll trade into the support zone before finding a strong bid. CSTR traded deep into the support zone before igniting. But it never touched the pre-planned stop loss.
The bottom line is this…
Some traders got scared out of the trade. They lost money. If you were one of them, you have some mental work to do. You must learn to accept the risks of trading.
You see, there’s a common misconception in trading. Most people think that since they’re trading, they’re accepting the risks of trading. This couldn’t be further from the truth! If you get scared out of trades easily, here’s the reality…
You’re unwilling to take small preplanned losses to get to the eventual big winner. (And that will cost you in the long run.)
You’re too afraid of the trade going against you. Instead of keeping with the original plan, you change plans midstream if the stock weakens. You’re bailing out of trades… you need to give the trades a little more time to work.
You don’t want to lose money, period. Guess what, trading doesn’t work that way…
How do you fix this issue?
Learn to fully accept the risks of your trades. In the case of CSTR, you should’ve been willing to have the trade hit the $23.45 stop loss before exiting. And you must be completely OK with it! Make a plan and stick to it. After all, if you were willing to let CSTR hit your stop loss… you could have made money on the trade!
Here’s another lesson from CSTR…
There was another way to enter the CSTR trade. It’s called using confirmation. It’s when you wait to see other buyers step in before you. Let some other traders get some skin in the game before you put your money to work.
The trade is still based on the $25 support zone. But by waiting for others to confirm the trade, you could’ve entered at a lower price. Buyers didn’t start stepping up in force until the 10th of December. Once you saw this buying interest, you’d be entering that day or the following morning.
Waiting for confirmation is just another way to enter. It’s a good way to get into trades with a little less risk.
Either way, CSTR was a nice trade…
For those of you who took the trade and got a profit out of it, congratulations.
Support zone trades happen like this all the time. Be on the lookout for them as your scanning your charts. It’s a great way to capture profits with controlled risk.
Category: Technical Analysis
