Wednesday, December 28, 2011

Bad Trade Lesson: $LCC, $IYT

I went after this trade thinking that it was a test of the upper descending wedge line. Hoping for a bounce off of that I went long. Today that pattern broke down. BUT I failed to notice something BIG that would have kept me from going long in the first place....

This stock was moving in the opposite direction of the DOW transportation stock index. When the DOW transports were rallying, buyers rejected this breakout and started selling off.

I basically was buying a falling knife. Lesson is to always check the major index of the sector you are trading. Make sure the stock is moving with that index.

When a stock is selling off and the index is rallying that is bearish. When the index is selling off and the stock is rallying, that's bullish and the stock is showing strength.

No comments:

Post a Comment