MLR - A lesson in pyramiding and selling - MCP

Published : May 4 2011 at 12:37 ET
Members remember we issued a report on MCP on the day it had an initial pocket pivot on March 22. It then had a breakout on April 4. MCP could be bought a number of times on the way up using money management risk principles. It then had another pocket pivot on May 3.

Anyone who cost averaged up should have made a nice profit on the trade if they sold today, or if they decided to hold, should still be showing a good profit.

Anyone who bought their initial position on May 3 should have made sure it did not exceed their risk tolerance levels. Thus position size and volatility of a stock should always be considered when initiating or adding to a position.

In terms of selling strategies for MCP, a number of potential sell stops could be employed. For example, if you had cost averaged up, you could use a violation of the 10dma or 50dma as your sell guide. If your initial position was made on May 3, then you could use an undercutting of the low on May 3 as your sell stop, or a violation of the 10dma which would be 71.14 if using May 2 low as your guide, 70.64 if using April 26 as your guide, or 67.7 is using April 21 as your guide.

As always, never exceed your maximum risk tolerance limits which for most people is no more than 8% from your average cost.

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