Thursday, May 8, 2008

Trade: SembMarine

This is my trade for SembMarine and here are the daily and weekly charts. By the way, I use two long term charts but I am just putting the weekly chart up.

My order for SembMarine was also filled on Monday alongside Ferrochina. Again, I bought in multiples lot of 4 for risk/reward management.

SembMarine has made a 5-wave pattern downwards. Technically, it has a failed wave 5 as it did not break the low recorded in early February but it is still considered a 5-wave pattern. The entry point at the dotted vertical line is known as the "first retrace after the cross" setup. This setup is of a lower win/loss probability than the "first retrace in the trend" setup.

The entry point at the at the solid vertical line is the "first retrace in the trend" setup. This is a high probably trade setup and should be the first few patterns that all trader should trade. This trade setup has a high win/loss ratio but the risk/reward ratio is not as good as picking reversals.

In summary:
(1) First retrace after the cross - an average probably setup
(2) First retrace in the trend - high probability setup
(3) Second retrace in the trend - good probability setup but not as good as the first retrace in the trend

All traders who just started out should only trade (2) and (3).

Are there any problems with this trade? Yes there are. First, I should not be trading during the time when the earnings are released. Technically, we would like to have the 15 EMA (black line) HOLD the price but it fell through and was then supported by the intermediate trend line (the red line or the 50 SMA line). Notice also that the 200 SMA is resisting the upward movement of price. My mentor calls it "blockage of energy". Besides that, the cycle and momentum indicators are still showing strength on the daily chart. On the weekly chart, the momentum indicator is still pointing up and both %k and %D are still pointing upwards. So no long-term trailing stop kicking in yet.

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