Monday, November 16, 2009

Ausgroup

Entered this trade on Ausgroup on 30th October 2009, at 0.640. The reason for entering is that there is a potential class A bullish divergence on the daily. Peak A has a price low of 0.645. On 30th Oct morning, the price went down to 0.640, which I entered.





The price went up to a high of 0.67 intraday, but towards the closing of the market, there was a severe selldown to close at 0.65. Price fell upon the release of the dismal results and went down to a low of 0.590, breaking the support level at 0.620. At this pt in time, the potential class A looks like it had become a class B signal or even a failed signal. Nobody can tell from the right edge of the chart.


After toying around 0.62 for around a week, the price shot up on 16th Nov, 2009. I subsequently sold it at 0.655, averting a $250 losses and changing it to a $18 profit. It might seem trivial and insignificant, but there are some very good lessons to learn from this counter.


Lessons:


1. I do not know Ausgroup as well as the other counters that I've been following. Hence, I've no idea that this counter follows the so-called FA so much. When profits fell as announced in the results release, the counter fell and broke support at 0.620. When contracts win are announnced, it broke through the value zone.


If you do not know how a stock behaves, you do not have an edge. At the very least, check out the when the earnings release dates are!


2. Unlike trading futures, there is no need to exercise a strict cut loss regime. Stocks have a certain value to it, and as long as the fundamentals are sound, keeping the stock will eventually result in at least a breakeven. I'm not saying ass-shares here, only fundamentally sound companies.


3. On hindsight, it's better to trade on the 2nd signal of the peak C. Or at least upon touching the lower envelope. Again, this mistake comes from not knowing the stock behaviour well enough. Some stocks like to touch envelope before bouncing back, some don't. I do not even know how Ausgroup will respond.


4. It might be good that only blue chip quality stocks or fundamentally sound stocks are traded. I did not check the FA of ausgroup, hence when the prices fell after the dismal results, I do not feel assured.

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