A few days ago Phil Town got this note from Chuck:
Thank you for the 43% gain thus far using Rule #1! That said, I’m licking my wounds on my latest transaction. I purchased RIMM on 03/11 at 40.00/share based on a $42 MOS. I then got out on 2 reds on 03/25 at 41.71 following your advice on your blog regarding a stock that’s either moving sideways or going down.
Had I stayed in until 3 reds I would have caught the ride all the way up to 60.10 as the stock rose 7.61% today during trading hours and then another 22.43% after hours because of better than expected earnings.
With such a big run up in the last 2 days would you still get in or wait for a pull-back considering there are 3 greens? Any advice on how to trade on 2 versus 3 reds in the future?
Chuck is doing great with RIMM but had a question about when to get in (and out). He's not stockpiling it, he's trading. He had a MOS at $42. Without comment on the MOS, let's look at the RIMM chart.
Click on the image for a larger pop-up.
Feb 16th at $49, 3 reds and we're out.
Chuck bought in against the arrows on March 11 based solely on the price being lower than the MOS.
Keep in mind that no matter how wonderful the business, no matter how great the price, if the big guys are selling, the price is going down.
Actually in this case he made a very skillful entry based not on the three arrows but on a bit more sophisticated strategy I call Floors and Ceilings (FACs, which I detail in my next book, PAYBACK TIME ). The stock price found a floor and he hit it. The it took off upward and he got out on "two reds at $41.71".
Except I don't see two reds on my chart. There isn't even one red. So Chuck, you might have gotten out on no reds at all. However, you did manage to exit as the stock hit the ceiling and came off it. Which, again, is an approved exit using FACs.
So assuming you got in on FACs at $40, you would have gotten out at about $41-42 on FACs.
Assuming you were using the arrows you wouldn't have gotten in at all until Mar 25th at $42 and you would have ridden it straight up.
And if you were using FACs to get in and out, then you would have used FACs to get back in at $43-$45 on Apr 1 and ridden it up.
Point is, either trading system you use: Rule #1 Tools or FACs, you would have been in for the big gap up if you'd stuck to the trading rules.
Still, you did well making 4% in a month and you're up huge over the last few months, so whatever you're doing is working well enough. Maybe just a bit more discipline and fine tuning and you won't miss these bounces.
Now go play.
