Monday, November 16, 2009

How a seemingly perfect trade setup can be rubbished by FA concerns

This is the daily chart of China milk product.

If you look at the first vertical line, that is where I entered at 0.430. At that point, it seems pretty sure that the selldown is easing off with a corresponding drop in force index. Again, unfamiliarity with the counter or just plain ignorance created this mistake. I didn't know that they are releasing results. The results are particularly bad. It resulted in a massive selldown, bringing the price way way below the lower envelope. The seemingly perfect class A bullish divergence became a failed signal.

Well, you can argue that it's a class B. But if you have to squint, may I suggest you just jump to the next chart? There are so many counters out there, why pick one which your crystal ball shows a hazy future?

Trade something with better FA. At least, there's no need to cut loss when there's surprises.

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