Valid at close Wed. Oct 7th

Clues to Exit

So where do we exit these trades?  The first is break even profit stops.  Some of these names are barely holding on after a three day push in the overall market.  It’s prudent to put tight reins on them and not let a small gain turn into any kind of loss.  The bigger profits can be given wiggle room.  When price runs back to the median line of your preferred time period a profit stop should be tightened.  The optimal exit is when price runs to the top of the channel.  Look at FCX:

For short term swing trades the 20 day channel is very useful.  A tight profit stop here at the top of the channel is often ideal.

Shorting Gold Miners

Using this method several gold miners look ready to go short: AEM TLR VGZ THM and KGN are all at new year highs.  The trick is getting price and time to align for maximum profit and minimum risk.  Let’s look at AEM:

YTD

Price is near the top of the year to date LR2 channel. It's a 2 sigma move that should come back down, but there's some wiggle room.

60 Day

The lowest risk entry would be around $76 at the top of the channel. On a smaller time frame there's much more finesse to maximize the setup.

More Names for this Week

Keep an eye on FCX.  It’s a great industry leading stock that will give clues to how gold and the miners will trade.  The following names might be a little early to short.  They are junior players that all made new highs today.  Gold is a very difficult sector to trade and there’s lots of wiggle room.  On the first sign of weakness these low risk trades could turn into quick profits.

KGN

THM

TLR

VGZ

Caution

These are probabilities not known outcomes.  The market can do anything at any time.  This concept assumes there will not be major news events or supply/demand shocks to upset the concept of mean reversion.  The odds of price retreating from range extremes outweighs the risk of shock events.  However, a maximum loss market stop is always necessary to protect one’s capital.  It’s vital to use concrete money management discipline.  Many swing traders will not risk more than 2% of their cash per week.  If you’ve got $50,000 taking a $1,000 draw down is the max loss per week.  That’s the cutoff point.  It proves the trading edge for that week is wrong.