I am making an adjustment to the Bearish EDU trade that I recommended previously. The trade looked really good and was staying within the established downtrend.
Today something strange happened and the stock totally exploded. I’m not too sure what sort of news caused this or if it’s a short squeeze. I don’t look at news events or follow analyst recommendations. I’m strictly a trend trader.
I have a rule within my personal trading plan that states when a position moves against me more than 1 ATR away from a major moving average or a trendline, I will close it.
Average True Range (ATR) shows traders the average range prices swing for an investment over a specified period. EDU’s ATR is $1.82 . Today it gapped up +$4.10 - more than double the average and on higher than normal volume.
I got into the trade for 1.03 credit and there is still some juice left in it, so I am choosing to close the position (buy it back) for approx. 1.75 - a loss of .72 on the trade.
I think a mistake would be to hold onto the trade and “hope it turns around”. I’ve been burned too many times with that kind of philosophy. One thing I will do is try and wait to close it in the last 30 minutes or so just in case it does start to fall again - though I don’t expect that to happen.
Who knows? Maybe it’ll crash again tomorrow, but I’m not going to wait around and be left holding the bag on this trade.
-Good Luck and Happy Trading!
Disclaimer: This information is for educational purposes only. I am not a dealer/broker nor am I a licensed investment advisor. This is not a recommendation to buy or sell any securities. I do not know your personal risk tolerances or financial situation. Never risk any money that you are not willing to lose. Options involve risk and are not suitable for all investors. The information provided is thought to be correct at time of publication. I may or may not hold or trade any positions in the securities listed in the newsletter. It is possible to lose all or most of your money. Please consult a professional, licensed investment advisor.
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