Wednesday, April 20, 2011

The silver trade, newsletter excerpt SI_F

All our focus was on silver today. As we wrote yesterday we were expecting opportunity in silver today due to yesterday being a trend day. It is rare to get two trend days in a row (in overbought daily) without some type of pull-back short opportunity. A few of you asked us to review our trade, here it is: First trade was on extension from EMA with sells from 44.98 to 45.13 averaging 45.08. Took majority on the on re-test of EMA for profit while stopped on last on new high for a loss. At this time we had fully realized how sticky the day was going to be and decided to be a bit more careful. Even though we got out with profits, we had rushed the entry (we should have started at 45.13 instead of adding there) and we were not going to make same mistake again.

Second entry was again on extension from EMA at 45.37 plus a separate position short SLV (don’t ask why, no rational reason, just wanted another vehicle) stopped on SI_F on new high which was very close by. This time it was much less painless as the trade worked without too much chop.

Covered positions throughout the fall while moving stop down aggressively. Also booked another quick trade short on the first test of the EMA. We wanted 44 for the last cover but didn’t get it and booked the last on the move over EMA 44.87. We gave up a lot of profit by waiting for that EMA to go (instead of covering all into the spike down) but we thought we had a chance for a kill and went for it — no regrets. Also was a good place to go flat as silver rallied for rest of afternoon.

Key was being very very patient in entry — there is no trend right now “stickier” than silver. Shorting it is probably not the smartest thing to do — but it’s what we wanted to do and we had a plan, and it worked well for a decent day of profits. If you short extended from EMA on an overbought chart then usually you can get away with not much damage or profits if you’re wrong (like our first trade) or good profits if you’re right (our second trade). Also note that if you want to short against a trend, wait for the day after a trend-day as it will increase odds of success. The day after a trend day in an overbought stock almost always offers some short opportunity (unless news). As our readers know these type of trades are rare for us (we’re trend-followers) but once in a while we like to get involved in order to keep things “fresh” and our skill levels in ready state.