Tuesday, May 6, 2008

Trade: Ferrochina

These are the updated charts for Ferrochina. They are the ADX/volume, 3-day (used as long-term chart) and daily chart.

My order for Ferrochina was filled on Monday. I bought Ferrochina and one other stock using two trading accounts. I usually buy in multiples lots of 4 as this really helps me in managing my overall risk position as the trade unfolds. Many traders buy and sell their positions all at once. You may want to consider taking some positions off to manage your overall risk structure and let the rest of your position run.

Back to Ferrochina, I really like the volume action (which is important since I am trading breakouts) as you could see from the ADX chart. It tells me that something is seriously brewing...

Ferrochina has made a 7-wave pattern downwards (so it is officially in an extended down trend) and has consolidate into a trading zone (a rectangle). For a valid rectangle, you need 4 points, 2 on top and 2 below. We have it here. I entered the trade, trading these two patterns:
  • Breakout from a rectangle
  • First retrace to a trend (an intermediate trend is defined by the 50 SMA (red line)
I am taking 50% of my position off at the nearest resistance. That happens to be the Fib 61.8 level. This should happen tomorrow. I am also taking another 25% off probably at the 200 SMA line (green line). I may keep my remaining 25% of my position and let it run if I am not stop out by the trailing stops on my long-term charts. If I manage to stay in the trade until the next cycle low, I will move my stop accordingly.

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