Why I Took My Silver Profits

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Why I Took My Silver Profits

I sent an email to my mentoring clients on 20 August 2012 saying that the silver breakout I had been waiting patiently for, had occurred.

I took a long silver trade on the breakout, and I added to the position on 5 September. Here is the chart showing the beautiful breakout on the daily chart. Notice the long period of consolidation which is often a good sign that the breakout will be successful:

[Click on the chart to enlarge it.]

You can see I have drawn in the Support/Resistance line at 26.4964 which price broke through.

At the close of trade, just as the Dow closed on Friday 7 September, I took profit on both positions at 33.61. Here is the chart:

If you know my trading style you will know this is unusual for me. I am a trend trader and I generally let my trades run until the market turns around, then I get stopped out.

But this time I took my profits. Here is why:

1. You can see in the chart above that we are right at this level of 33.61 we are at long term support/resistance with multiple touches going back to January 2011.

2. You can also see that we are a long way extended from the Moving Average lines, which is rarely sustainable.

3. Closing out a profitable position on a Friday afternoon eliminates weekend event risk.

4. I ask myself “If I did not already have a position, would I be buying here?” The answer is clearly no, because I would have missed the profitable part of the trade, and I would be buying when the moving averages suggest a pullback is far more likely than a further price extension.

5. Don’t be greedy! Trying to squeeze the last few dollars out of a profitable trade is usually a mistake. This has been my second most profitable trade of the year so far (second only to my short Live Cattle trade earlier in the year).

6. If I look at the chart, and if I was going to take a bet (and in a sense I have) I would happily bet that I will be able to buy silver at a lower price than 33.61 in the next two weeks.

 

Can Silver go higher? Absolutely!

Can it go higher on Monday and keep going up? Yes of course.

But as traders we are not dealing with “unlikely possibilities” we are dealing with “probabilities”.

Looking at the chart, the probability is that price is over extended, has reached a major resistance point and will fall back early next week. Therefore I need to get out and wait for a new set-up on silver before going long again.

Breakouts 2012

As I said I am a trend trader. 2012 has been the best year for breakouts, especially my favourite 20 day high/20 day low breakout, since 2008.

I could give you lots of examples but if you look at the charts for the year you will see a lot of successful break out trades.

So I am looking for more breakouts now – because they are working so well!

Happy trading.

 

Oli

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