Study Guide for Come Into My Trading Room - Forex Factory

170 CASE STUDIES
Trade 2: Sun Microsystems SUNW—Exit Answer
Chart A2-c
entry
long
A
B C D
As a rule, it pays to bracket the long moving average with an envelope
or a channel and use its walls as guidelines for taking profits. One of the
few proven behaviors of the market is its tendency to oscillate above
and below value. If we buy near the moving average, near value, then
our goal is to sell when the stock or commodity becomes overvalued,
near the upper channel line.
The first selling opportunity in SUNW comes in area A, after the stock
spends more than a week going nowhere, straddling its moving average.
Do we want to give the trade more time to work out, or close it and look
for another? If you trade a small account, it is important to free up your
capital. Even in a larger account, a stock that is going nowhere ties up
more than capital. It competes for the trader’s attention, taking his mind
off other, more promising, trades, almost like a sick child tends to get
the lion’s share of attention in the family.
If we continue to hold, SUNW presents a fantastic selling opportunity
in area B. Prices speed up to the upside, puncture the upper channel
line with an unusually tall bar, only to weaken near the close and
end the day within the channel. Our goal is to sell above value, and this