In Chart Two, you see that I have in fact placed a MOO, or Market On Open order, as a day order ONLY to sell one contract. A MOO order will be filled when the market opens the following day. Of course you need to place a MOO order prior to the market opening. Either after the market closes the day before, or before the market open on the day you place the order. MOO orders are usually filled very close to the opening price.

Now that I know where I want to enter the market, I also have to have a protective stop in place. I'm going to keep a tight stop on this trade and have my protective stop just about the Trendline. If the trend does not hold, I want out with a small loss. Of course my protective stop is a buy stop, to buy the contract back and exit the trade. It's also a GTC order; (Good Till Canceled). Now since my order to enter the market short is a Day Only order, you want to make sure that your Broker knows exactly what you are doing. If your Day order is not filled, you don't want the GTC order placed. A good full-service broker will make sure you are taken care of. This is just one more reason that most, not all, people should be using a
full-service Broker.

Just like in lesson one on Trendlines, you also want to set a profit, or add on target. In Chart Three, I have shown you where the 50% level on the contract is; which is 8.13. This gives me some concerns as many times the price will hit the 50% level of the contract and bounce right back. If this happens, then not only will I probably not make an money, I could possible lose money on the trade. It's a 50/50 trade at best. It's certainly not a trade that I would get excited about. But for now, I'm still going to go ahead and keep my MOO order in place. I am however going to keep some tight stops and if it goes against me I want to get out with a small loss. Remember, you won't win on all your trades. As a matter of fact, you will probably lose on more trades than you win on. You can still make good money though once you learn some good money management techniques.

Well, we were filled on the open at 8.13 and the day closed at 8.22. We are down about $80 on the trade, including commissions so far. The trade is not going the way I hoped that it would but an $80 draw down (loss during the trade) is not to bad. Did you notice that the third hit was also a Top Blip! Also notice that the low of the day was exactly at the 50% level of the contract and then it bounce off, just like I talked about it doing.

I've got a risk of $275 if I leave my stop where it is. Since the Top Blip formed which is Bearish, I'm going to stay in the trade another day and see what happens.

Wow! Look at this really big Spike down day following the Top Blip. Don't you just love these Blips too! This is not a "normal" day and this spike was caused by some kind of news probably. One of two things will probably happen tomorrow. Either the news holds true, and if it does it was probably negative news of some kind, and the price will drop again. If not, the price should rebound a little. As you can see, we are up about $800 on the trade today.

If the price does rebound and head back up tomorrow, I want out with some kind of profit. I just don't feel real good about this trade. It's broken the 50% level, it's Spiking down, which is normally a good sign if you are short. At the end of each day, you should look at each trade you are in as a "new" trade for tomorrow. If you can't find a good reason to be in it tomorrow, then get out. Looking at this trade I can only see a Spike down day as being a positive reason to stay in it. I'm going to move my stops down and lock in some profits for tomorrow. Nothing wrong with taking some profits. 

Now, I could place another MOO order to get out in the morning but if it opens and then heads down, I would not want out, I would still want to be short. I decided to place a Buy Stop about halfway between the range of today. As you can see on the following chart, I'm locking in over $400 profit by doing this. I've only been in the trade for three days, so that's pretty good.

Today the market did in fact bounce back up. We got stopped out with a profit of just over $450 after commissions. Not back considering how long we were in the trade. Also we on had a draw down of about $80 too. If you could do this everyday, then you could earn over $30,000 a year. I know a lot of people who would love to do that, especially considering the fact that you probably only spend about an hour or two studying this trade.

I hope you enjoyed this part of the lesson and learned a little something at the same time.

Take care,
David Duty, CTA