AMGN was a name, we at TE were keeping an eye on for a break out of $165. Why $165?
For the past 4 months it has found resistance at $165 and each time continue to make a higher low. Forming an ascending triangle (bullish pattern). On the day we enter the position we bought it off the open on a Gap up (bullish sign), through Prior days highs (another bullish sign) and on strong volume (another bullish sign). We cheated the $165 level, yes, but given how $165 has failed numerous times, we would rather have gotten in early with the right signs to lower our risk in the trade. In this trade our STOP was the days lows at $162.70, per 100 shares around $30 of risk plus commission. By the end of the day AMGN was getting up near $165 but looked as if it needed another day or 2 to have some follow through to break this $165 level. So from our entry we have around a $2 cushion from our target for the break out and can add more when the stock breaks out.
But what happens? Next day doesn't break out from $165 but our Stop of $162.70 is not hit, so we are still in and waiting to add more when it breaks.
Next day, we get stopped out for $.30 per share loss and move on. But since we had a game plan, of our entry, our stock, our target and reasons why we are getting it were fine. Our loss was small enough it would be like paying for someones lunch. Fast forward 2 days later and its $7 dollars lower. Broke the support trend line (bearish sign) and coudlnt reclaim that trend line (another bearish sign).
Someone without a game plan, who took the same trade could have lost as much as $700 per 100 shares. Or similar to paying someones rent or car payment.
By having a plan and proper risk reward, we can take this trade 10 times in a row and only need it to succeed at least 3 times to be profitable, with out proper risk management your going to have a bad time.
For more questions about this trade and updates on when we will be buying it again email us at TradingExperts1@gmail.com
Blue line - $165 resistance, the area we are looking for the stock to break out of to add more stock to our position
Yellow line - The support trend line, as you can see, higher lower
Green Line - Our entry
Red Line - Our stop