Think patience doesn’t pay off? Check out this chart off Monsanto (MON). (June 09, 2016)
MON XLB MON
I want to look at Monsanto ( NYSE:MON ) in this video, and here’s why: It’s really at what I think is a pretty good buy point. You see the stock drifted kind of in a base here. It broke out above the 200-day moving average; and then as so many of the stocks have done it ultimately kept moving to a point that where you get this crossover. Okay, that’s great. The stock, by the time you get to the crossover it’s too late to buy, if you’re trying to time your entry. So you wait and the stock, indeed, pulls back, making you very happy that you didn’t buy here at 113.00. But now we’ve got this stock pulling back, support above this 20-day moving average and holding tight for a couple days, a couple good green bars. So I would look at this as a good time to be buying this stock, actually. Because it’s high enough, it’s pulled back enough to where you can really comfortably say this downtrend here has been negated. Now we’re in an uptrend.
NOW I want to look, before I even make this entry, I want to look at the weekly chart and see, okay, this is definitely something different happening here. This was a big, massive sell-off and now we’re at a point where we can look to buy. Oh, and one other thing, lets see what the overlying sector is doing. That’s basic Materials ( NYSEARCA:XLB ), other AG chemical stocks and various other things as well. The XLB ( NYSEARCA:XLB ) is in a really nice uptrend. So there’s some ‘wind in the sails’ here. There’s some wind in your back here if you’re a bull on Monsanto ( NYSE:MON ). The stock has broken out and then holding above the 50-day moving average here on the XLB ( NYSEARCA:XLB ). Any pullback we would expect this to hold. And similarly IF you’re taking Monsanto ( NYSE:MON ), you’re looking at it on this time frame, so you’re taking Monsanto ( NYSE:MON ), you really want to have your stop right underneath 106.00. Because you’re whole REASON for buying right now, and if you don’t agree with this then don’t buy, I’m just presenting the trade idea, your whole reason for buying is, that you believe that this gap is going to hold. You believe that it HAS held. You’ve seen the stock move up, no, that’s too much.
You’ve seen it pullback, you don’t know when that pullback is going to run it’s course. And then after Wednesday and now Thursday, okay, now I have a THEORY. And that is that this pullback HAS run it’s course and I want to be long the stock before it keeps going higher still. So how will I know if my theory is wrong? I will know because the stock will not hold above this level. It won’t hold in this gap. So that’s when I’m going to sell. The idea is, look, this stock is going to go higher or lower, nobody knows, but we have to assess our risk. And that starts with our idea. Why am I buying this stock? If you know WHY you are buying the stock, with specificity, then you know where you need to place your stop. You place your stop, not where your emotions tell you to, or whatever. But it’s a hardcore objective analysis. My idea is, this level is going to hold, I’ll put a stop just below that. If your idea is NOT that the level is going to hold, but rather you just think that the stock is going to continue to move higher, well, put your stop down here below 80.00 if you want. It doesn’t matter. Just HAVE an idea and then put your stop in according to what that idea is. So I’ve just given you mine. Whether you craft it on this one or another stock, have an idea. Place a stop according to that idea so that you are stopped out WHEN your idea is proven to be incorrect. And that won’t make you a bad trader, it will just make you a good risk manager.
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