How Stop Buy Orders Can Protect You – Educational Chart Review – KGC Kinross Gold

by Olivier on October 17, 2014

This is meant to be a ‘post trade’ analysis. The real educational value here is the fact the ‘trade’ was not taken as the suggested method to enter the trade was a stop buy order. The stop buy order simply never triggered. The advantage of using such a method is pretty obvious. It protects you against yourself. You have heard me say quite often that I do have strong opinions but that I do not trade them. I base my buy and sell decisions on price action alone, not my opinion.

The KGC – Kinross Gold example is perfect in order to exemplify the benefits of such an approach. A stop buy order takes care of one of the emotional components traders struggle with. It only executes if the market cooperates and agrees with one’s assumptions. In KGC’s case, jumping the gun or simply doing the buy and hold thing, thinking that the supposedly great fundamentals would bail you out, eventually ended very badly. Those still holding are now simply hoping. Assuming the stock doesn’t go lower from here, I wouldn’t bet on it, I still have very bad news for you:

You need to almost increase your capital 4-fold in order to break even. This is not a career ending move but if you do not learn from such a mistake and repeat it one more time you are out of business. The only way to avoid this is a disciplined approach, proper risk control and a willingness to add Technical Analysis to your tool box.

Click on KGC chart to enlarge:

Here is the original post on KGC – Kinross Gold suggesting a stop buy order above 10.52. Don’t get me wrong, I’ve had my fair share of bad calls over the years. The key is to stay humble at all times and to correct mistakes as fast as possible. Love small losses, hate large losses.

Remember: Price is the ultimate truth and your ego is your worst enemy.

Don’t pick tops. Don’t pick bottoms. – Edward Allen Toppel


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