Follow That Trade!: Making Adjustments

"Follow That Trade!" aims to divulge my thought process as the market and the trades evolve. It has a raw feel to it because it is a week-by-week account of how to manage risk and find reward while battling an ever-changing market dynamic. In doing that, I discovered last week that it's also about clarity. Last week revealed a severe lapse in clarity as manifested in the SPDR Gold (GLD - commentary - Trade Now) trade. Allow me to digress for a few seconds.

When reviewing the action and our trades from last week, I am struck by the disconnect between what was said and what was intended with respect to the GLD order. When putting the trade together, I expected it would be a quick make-or-break trade for Monday morning. Oops ... the entry/exit spreadsheet did not specify it as a day order but instead as a good-till-canceled (GTC) order. Given the increased market volatility, GLD did snap higher Monday morning as expected, but our order went unfilled given the gap-higher opening. Rather than automatically cancel as a day order, though, it sat there until Thursday's $50 plunge, whereupon it both filled and stopped out in the span of about 10 minutes.

We will all make mistakes in our trading endeavors (and sometimes mistakes in the expression of those trading intentions). The lesson learned? First recognize the errors and make adjustments to prevent them in the future. As such, you'll notice that the entry/exit spreadsheet has changed to indicate trade duration specifically for each trade.

Setting the GLD trade aside, the other two trades worked more to our liking. The ProShares UltraShort Dow30 (DXD - commentary - Trade Now) trade hit its target where we took profits and then reversed lower. On the flip side, Chesapeake (CHK - commentary - Trade Now) tested that gap area from December, allowing us to pick up our last desired purchase. That gave us a full-sized position at an average price of $25.93. Now we can look to work this position into a winning trade. Here's the chart on CHK.

CHK Daily Source: Prophet.net

If you recall, last week we moved our entry down to the low-$24 area to make our final purchase. We also moved our stops slightly lower to give the position a little more wiggle room on the retest of that high-volume December gap higher. Both changes were needed, and both look like they may pay dividends. Now we have to take advantage of this possible good fortune.

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At the time of publication, Little was long GLD, DXD, CHK and TBT (and SDS and SH), though positions can change at any time.

L.A. Little, author, professional trader and money manager, writes daily on www.tatoday.com, a free educational site for traders and investors. He has been featured in numerous publications and is the author of Trade Like The Little Guy.

His background includes degrees in philosophy, computer science, computer information systems and telecommunications. With a trading philosophy centered on capital protection first and the accumulation of consistent gains over time, L.A. espouses a simplistic technical approach to trading the markets that is a throwback to the days of past. With a focus on swing points and the qualification of trends, L.A. provides a breath of fresh air to an otherwise crowded room of derivative indicators with the emphasis on technical minutiae.