3 years ago

FLT when trades go wrong.

Yesterday FLT was identified as a potential trade, these are the comments made against the chart.

The weekly chart of FLT is a nice Technical set up of support and resistance.
Clear support is indicated at $43 and resistance at $48.
The Primary trend is UP, after the price target from the head and shoulder pattern from 2013 2014, and but does need to trade over $44.80 to give an indication of strength.
Price target $56.00
The recent Inverse head and shoulder pattern shows the neckline retest last week.
Stops would set at or near  $43 or last weeks low at $42.18.

–  all good so far.
After market open, FLT management put the stock into a trading halt and announced a margin squeeze in the profit line
and earnings at the lower end of guidance.
Stock comes out of the trading halt and makes an intraday low at one stage down 15%.
This example highlights the reasoning behind the position sizing rule every trader should apply in full.

The position sizing Rule:-
Decide how much of the account value as a percentage you are willing to risk if the trade Idea does not work out.
For this example we will use 1.0 % of $100,000 translated to $1000.
Stock is trading at $44.0  stop loss is identified at $43.50 or 50c away.
Risking $1000 would allow the trader to purchase $1000 divided by 0.50 cents  equals 2000 shares purchased.
However sudden market movements are part of trading in this case when FLT opened after the announcement
the stock traded at $40 an immediate loss of $4.00.
So our loss against the portfolio is 2000 x $4.00  = $8000  or 8%
While very uncomfortable, the outcome does not put the trader into an unrecoverable position in the portfolio.