When a Trade Goes Bust

 | Sep 30, 2012 | 5:30 PM EDT
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It's great when a trade setup works and gives you the price target you'd been seeking. But, when it doesn't, how are you supposed to play it and define your risk? This is just as important as how you handle the winning trades, if not more so.

For an example of this, let's look at prior setup in Hain Celestial (HAIN). In a prior commentary earlier this month, I looked at this stock for a possible buy entry as the shares tested key support. In this case, only the aggressive buy trigger fired off, and it was a trade that would have been stopped out. The 30-minute chart will show you that the buy side would not have triggered if you'd opted for using the not-so-aggressive entry trigger.

So let's first review the 15-minute entry -- and note that if you use this aggressive entry for a swing trade, you will be stopped out more often than when you opt for the 30-minute chart. Please refer to my guidelines for using my work as you follow along.

Hein Celestial (HAIN) -- 15-Minute Chart
Source: Dynamic Trader

After Hain tested and held above the high end of the support level mentioned in my prior piece, we saw an official buy trigger on the 15-minute chart, as you can see above. At that point, had to see a prior swing high taken out -- and this was accomplished when the prior $68.24 swing high was taken out on the upside. The second move we needed to see was a moving-average crossover. This is illustrated on the chart, and it's where we saw the eight-bar exponential moving average clearly cross above the 34-day EMA.

Now, if you'd bought that pullback to the Sept. 12 low, it wouldn't have ended up holding, and you would have been stopped out of this trade with a relatively small loss.

Hein Celestial (HAIN) -- 30-Minute Chart
Source: Dynamic Trader

On the 30-minute chart, you can see where Hain did take out a prior swing high. However, this entry was never confirmed, as the EMA crossover did not occur on the 30-minute chart. So sometimes, when you go for the aggressive move, you'll get burned. The good news is that the risk can be very well defined!

Now let's move on to an older trade setup -- one that may offer you a reentry on the buy side in the coming sessions.

Philip Morris (PM) -- Daily
Source: Dynamic Trader

In Philip Morris (PM), the initial setup was on the buy side, with the stock having tested and held key time and price parameters on Sept. 12. If this setup is to play out fully, my initial upside target off that low remains at the $95.64 area. Since PM is now pulling back to the Sept. 12 low, we may have another opportunity for a secondary entry against the original play. Let's take a look at the 30-minute chart and see what needs to occur.

Philip Morris (PM) -- 30-Minute Chart
Source: Dynamic Trader

First, I want the price to hold above the $88.59-to-$89.73 area on this pullback. As long as the stock continues holding above that zone, a prior swing high is taken out, and the eight-day EMA crosses back above the 34-day EMA, I will take a reentry on the buy side. If this occurs, it will be worth placing another bet on the buy side in PM. If not, stand aside and look to the next trade setup instead!

Bottom line: Plenty of trade setups won't work out. But when they do, the risk-reward ratio will definitely be in your favor.

Again, for more information about trades and triggers, please refer here.

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