Today LNG – Cheniere Energy got killed. There is no other way to describe what happened. Everybody wanted out. It was the classic:
“Sell first – ask questions later.”
The chart illustrates why it is crucial to cultivate a disciplined approach to trading. Always use stop losses. If you are not in front of your screens during the day, you have to protect those profits while they are still there. When a stock keeps moving in your direction raise your stop losses accordingly. As a rule of thumb a good idea would be to place a stop loss below pivot lows. So whenever a stock prints higher lows during strong uptrends, those are the price areas where sound stop losses could be placed.
A picture is worth a thousand words they say… LNG’s chart is a picture perfect example for that famous adage. No matter how you slice it, the chart is broken. Lots of people are now going to ask the famous “why” questions. The answers to these kind of questions are irrelevant for traders. Instead, spend time thinking about relevant stuff that will improve your trading results over the long run:
- How can I improve my discipline?
- Price is king. Therefore, I will react to price.
- I will respect the chart’s message and I will not trade ‘against’ the chart.
Yesterday I was still willing to be patient as the short squeeze set-up was still in play. Today’s price action invalidated that assumption. Early on it was clear being patient was not the right thing to do anymore. To make a long story short, being long my risk was to give back part of my profit. Traders shorting the stock were risking their career as there is no way to tell what kind of price levels can be reached once a short squeeze kicks in. It was a risk I was willing to take. Although I ended up with a gain of almost 50% I did leave money on the table and gave back some profits. No big deal. That’s the cost of doing business. Today I simply stepped aside and got out of harm’s way. The technical damage is huge so the stock comes off the list. Time to move on. If it sets up again I can always reenter.
Today’s action is nothing really exceptional. I addressed this in my ‘Same old same old’ post.
Here is an article dealing with the “why” question.
When the facts change, I change my mind. What do you do Sir? – Lord Maynard Keynes
My public list with all my charts can be viewed here:
http://stockcharts.com/def/servlet/Favorites.CServlet?obj=ID2791469
Buenas noches!