Perfectionism

I'm always looking for the perfect trade and yet, I've often had too many positions so I clearly haven't been discriminating enough. What is the perfect trade for me? Is it to catch momentum and get a great move – say, 5 or 10% – in a few days and then get out? This might be something like AWE. (Chart is in yesterday's post). Or is it to get a nice low risk entry allowing time to accumulate a good size position and then have the trend resume? Hopefully, like PNA, which I've bought this morning at 343.7 average. (Stop is at 332).

I think it's the style of trade taken in AWE or BRU.

The pitfalls are that you don't get filled, as in BRU, above. I was keen to buy the day before but in this case, the downside was too large with the previous low at 110. I suppose I could have gone with a very tight stop using the low from last week of 123.

You can also catch a false break and generally it can get too intense and dependent on momentum rather than driven by a broader trend view. For example, PNA is in a decent trend, it has just pulled back from a fast move to a broad area of support, the rally took it clearly through longer term resistance and there is no extended topping out pattern. My stop would be triggered on a break of the first leg of the move which is just a few percent away from the entry while the target to the upside would be 380-400 which is roughly 11 to 15% giving a decent risk/reward ratio.

There's even been an element of instant gratification to the trade with a reversal from the early weakness that I bought into and the stock now back up at 351.

The other two positions are problematic. IAU is grinding up and if I wasn't still bullish about the market overall, I'd get out. There's a chance that it can transform but it would need to accelerate while the day of reckoning is at hand if it drifts back into the mid 120s.

IPL is worse. It is stuck in a range and me with it. It's still making higher lows despite yesterday's softness and it could have a more dramatic leg up. Nevertheless, the trade has been a trap. With the momentum in the resource stocks, there would have been plenty of better places to take a position.

The Asx 200 is up 11 or 12 points after a flat morning, taking heart from a better opening in China. It looks ok to me, not flash but tending to consolidate in a tight range after little jumps. It's the sort of chart you get in a short covering rally.

I've been thinking about using options in the XJO (or Asx 200) but I had a strong opinion in early January and could have benefitted then but will now wait for a better opportunity.

4.14 The index drifted off to close down 10 points at 4263. It could have been some profit taking with the Asx 200 about 5% higher for the month.

IAU slipped to close lower but IPL rallied to 321, while BRU and PNA were firm. I'd pretty much decided to sell out of IAU but wasn't aggressive enough. I may get another chance first thing.