Follow Up on CTSH

Last time I discussed this trade I tried to poll the audience to see who stayed in this trade and who stayed out. If you didn't read this post (about price pattern failure) please click here. When you are looking at a stock, and you think you see a pattern (i.e triangle, head & shoulders, flag, etc.) always remember..."A pattern is not a pattern until it is confirmed." What I mean by "confirmed," is the stock has broken out of this pattern like it should have, and you can look back and say, "yes, that was a _______ pattern (fill in the blank). Going back to CTSH, it confirmed an ascending triangle pattern on Sept 13th, closing above resistance and breaking out of this trend continuation pattern.

What everyone needs to realize is that even though we have a two month target of $80 per share on this stock, does not mean it is going to move right away. This is why many people bailed out a day or two later. Try to keep in mind that 90% of the time, trading price patterns is half mental. The other times it requires discipline.

Part of the discipline I am talking about is knowing in general how these trades react. A majority of the time, after a stock breaks new resistance (just like CTSH) it is very routine for the stock to come back down and test old resistance as new support. This is textbook. For all those who took the trade and followed along, I have told you to expect this to happen. As I thought about this, which occurred as CTSH closed at another 52-week high, I realized that this was a perfect exercise to walk through the emotion that a trader goes through. Even though I was here to hold your hand, and the rest of the group was here for you as well, we all experienced the exact same emotion at the same time. We all traded an option, we all experienced a small loss at first due to the re-test, and experienced a loss in time value while the stock consolidated, but we made it through alive. We conquered fear, which drives most of a traders decisions. The more you go through exercises like this and the more you are able to battle your emotion, the better trader you will become. I wanted to tell you all that you did a great job, and keep up the good work. I will introduce another pattern like this that we can follow along and use as an experiment. Be patient for this one, especially since I have been very busy lately.

Two last items before I close. First, I will be posting at least two more times today. This ought to make up for the infrequent posts lately, and second...Yes, it looks like CTSH might have a tombstone doji. If that candle is enough to make you walk away from a great potential reward, fine. Just make sure this is a disciplined decision, not an emotional one.

I did get out of CTSH intraday, but thanfully got back in when the Nov $75's became available.

Yes, there's a tombstone doji, and yes, it comes right after a hanging man, but it still has to be confirmed and there's still a solid uptrending support line from the triangle that has held up. So as far as i'm concerned, i wouldn't even think of selling unless that trendline is broken.

of course, it would have been nice if that huge move today had held up, but what can you do?

my biggest problem as a trader is not being patient to let moves finish to hit their targets. i'm trying to work on this, but it's hard when you watch your profits begin evaporating (see OIS and BTU).

I just try and keep the overall trend and target in mind and not get too wrapped up in the small stuff. easier said than done, i know, but i'm trying.

Yes, still in. I bought Oct 70 C on 09.18.06 for $4.50. Saw up to slightly over 50% gain today and almost sold but not yet...

I originally entered this trade on the 14th after the break out. I was stopped out of this trade on the 15th when it dipped below 71.50 interday, still closing above support. Maybe I had my stop to close. I did get back into the trade the next day believing the pattern had not failed. I am currently profitable on this trade. As a fairly new trader (8 months) I am still trying to let "my winner's run". I have moved my stop up but I want to give it room. I am working real hard to keep my emotions out and I still believe the pattern is working. I will stay in this trade until the pattern fails. I am willing to accept a small loss to let the pattern work. The risk / reward is still in my favor. The doji has not confirmed yet and the market is still bullish.
Thanks for this blog. It does give me and others, I'm sure, the confidence to stay in trades longer to let the pattern work. I know this is the only way to increase profits but it takes "emotional" work.
Thanks again for all your efforts.

Still in the trade thanks to your encouragement. I have been tempted to get out before but stayed because it is not a failed pattern until it is a failed pattern. Now I have to consider when to get out because of the time value in my October option.

Jeff Haywood

I had a long look (and talk) to myself about 2 weeks ago. I took a 3 x 5 index card and wrote down all of my positions. Along with the positions I reaffirmed what I had written in my journal for exit plans for each. I am able to look intraday at my positions, but have not gotten out of any trades intraday since getting the index card. This has also made it where I look at the market less intraday. I found myself looking at the positions and then saying "So what, the stock is down 5% for the day, but it hasn't closed yet" Since my rule is a CLOSE below a support, there is less reason to look intraday. Love the Blog and all of the good info. I have a couple of trades that I found on my own that are reaping great rewards. Thanks for the help. Also 2 guys at work have told me no one can make $$$ in the market. I told them they were right and then went short on LDSH today....... WAAAHOOO They went to morning break, and I went up 7%.

Tom and Ely DeGroodt

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About me

  • I'm Option Addict
  • From Saratoga Springs, Utah, United States
  • I am a professional trader and an instructor for Investools. I've had relations with the markets for 9 years. Born in Concord, CA, but reside in Saratoga Springs, Utah. Father of THREE, Husband of one.
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