The Art of Speculation

After running some scans over the weekend, EAG was a particular chart that caught my eye. One of my scans specifically looks for stocks which have recently broke, preferrably gapped above, the 50 EMA on strong volume after trading in a downtrend and forming a solid base.

Check out the Daily and Weekly Charts:





As you can see, EAG met that criteria beautifully. The volume spike on a modest move is specifically what makes this setup more successful, so I watched it very closely at the open this morning to determine whether this would be a momentum play and continue to move. I was looking for it to hold Friday's close and see some volume hit the Ask. This was confirmed so I bought at 0.79, and a trend begins to unfold. I had three potential targets (or resistance areas if you wish) in mind: 1st 0.90, then 1.00, and finally 1.05. It turns out EAG would break all 3 of these but I was content with locking in my profits at 1.03.

As the position moves in my favor, I move up my trailing stop first to breakeven, then to 0.86, then 0.91. EAG picks up pace and the trend starts moving at a higher velocity so I decide to follow the faster trend and lock in this profit. I did not want to be stuck running for the door while the latecomers jumped in, so I decided to gladly sell to any buyer above $1.00 thus reaching my target.

Here is the intraday chart illustrating what I was looking at:

Finally, here is the Daily Chart after the position was closed:





Overall, I believe this was a fairly well executed trade. I followed my rules, executed my trade once I percieved the edge without reservation or hesitation, and I payed myself as the market made money avaliable. For those of you familiar with "Trading in the Zone," this comes straight out of the "I Am a Consistent Winner Because:" composed by Mark Douglas. This book is absolutely at the top of my recommendation list to buy and study very closely. I have this list hung in my trading room right above my desk and refer to it often.

I hope you may find the anatomy of this trade helpful, and I will do my best to post more of my trades (both winners and losers ;) ) in the near future.

The S&P 500 and the Dow continue to climb to new highs here, while the Nasdaq is finally picking up the pace coming very close to its 4-year highs.

Take a look at the 6 Month chart for the Nasdaq:




While I would advise caution as we have approached overbought territory, the prevailing wisdom is to follow the trend. Many have been skeptical of this recent run, including myself, but as we continue to move here, I believe this may begin to shift the skeptic crowd's sentiment into a more neutral/bullish tone.

Welcome my good friends to this new blog.