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The Good, the Bad, and the Ugly: A Review of Trades


A look at trades over the past six months, and how to critically evaluate their success or failure.

The Good, the Bad, and the Ugly

Periodically reviewing trades is the hallmark of any professional trader. High-fiving over the big one I caught yet sticking my head in the sand when I stunk up the joint isn't the way to stay viable nor keep capital at all-time highs. To maintain a steadily rising equity curve with minimal drawdowns, one must have a solid trading plan, honor stop limits, be patient for proper setups, keep a trade journal, and review prior trades. Focusing on what I did right as a trader is valuable for sure, but honing, pruning, and correcting mistakes will pay bigger dividends.

I want to take a look at several trades we've considered over the past six months, and show you the process I take to critically evaluate their success or failure. Now mind you, a trade is truly a failure only if I fail to learn from it. Taking a predetermined loss that's aligned with proper risk is an insurance guarantee and a cost of doing business. Let's jump in and dissect some winners and losers. I've added a vertical line to each chart when they were highlighted in Minyanville articles so we can gauge a starting point for further review.

The Good

Mylan (MYL)
Mylan was highlighted as a long as part of our swine flu plays (see How to Profit from the Swine Flu Panic). While not a straight play on the swine flu epidemic, I included Mylan because it had been knocked down on possible quality control news out of its West Virginia plant, but the chart quickly solidified. Right before I called to go long, Mylan kissed the 50 MA in textbook fashion and has been off to the races ever since. With a trailing stop to protect profits, traders should have been smiling with the price action Mylan has provided. We'll chalk this one up on the "good" side.

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Canadian Solar (CSIQ)
The majority of the solar plays I highlighted in my August 7, 2009 article Five Solar Stocks Turning Up the Heat did not transpire as planned. I can't reinforce enough that this would be a perfect example of why stop losses must be implemented beforehand and adhered to as the golden rule. Preservation of one's trading capital is paramount and one of the rules a trader must follow without fail. Anyway, because of the high-flying nature of these names, Canadian Solar did break out and go on to a double in a few short months. At the time of the article, I advised traders to wait for a pullback below $16.00 before buying in, and a patient trader would have been rewarded. A trailing stop would now have a trader out of Canadian Solar with a healthy gain on the explosive move. I'll put this one in the win column as well and call it good.

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General Electric (GE)
GE was one if our summer picks that I said would signal the health of the overall market (see Four Stocks that Could Save Your Portfolio). True to form, GE truly has allowed traders to take a glimpse of market breadth and glean a little insight into what's coming next. When GE broke out of the head-and-shoulders formation, I cautioned that the 50 MA would be the area that needed to be watched, and as GE sailed through that level on a gap a nimble trader would have been ready to go in. Currently, that level hasn't been violated although pullbacks later in the year more than likely would have stopped out any trade. This trade also can be put in the "good" column.

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