Tuesday, February 20, 2007

Dummy Trade of the Day - Force Protection, Inc. (Public, NASDAQ:FRPT)

FRPT was a failed gapper dummy setup. FRPT gapped up and carved out a bullish WRB. The second bar was bearish but held $20.00 as support. The third bar was NR and printed a higher low ($20.01). I took a dummy long entry on a break of the third bar high with the rising 5 period EMA comfortably close as support. I anticipated that FRPT would setup a u-shaped base and breakout for a vertical momo move. It did breakout, but unfortunately the momo quickly dissipated and it started to come back in. I reacted immediately to the failure by moving up my stop to $20.50 and was taken out.

Why did it fail? I usually check the daily timeframe before taking a position, but today I was too busy and neglected to do so. After exiting the position, I pulled up the daily and noticed that there was a clear line of resistance at $20.80. Had I checked this before, I could have at least taken a partial as price approached resistance. Notice how price did take out resistance briefly in the afternoon but quickly reversed.

Some readers have expressed the view that they can learn from bad trades, so this post is for your learning pleasure. Your critiques are welcome.


Bubs said...

Sometimes I forget to look at the daily chart, especially when taking these gap plays. Glad to see you post these trades.

BL said...

Thanks too for remeinding me of the longer time frames. I guess it's help. Not sure if X does it as it might be another thing to look at, think about and miss the trade completely.

Jamie said...

Thanks for the feedback guys.

Michelle B said...

Jamie, I don't believe you had a losing trade--you are just making it up! (teehee)

Seriously, good analysis of this one, and lesson learned perhaps is why take a trade if you are too busy to do an important part of your routine which is to check out the daily pattern?

Jamie said...

Hey Michelle,

Welcome back! Good advice. This never happens on a planned trade, but the gappers sometimes get away with a less than perfect analysis before entry.