This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com

Traded Baidu.com, Inc. (ADR) (NASDAQ: BIDU) today. It had a very compelling setup, though the longer term trend was against me.

The Setup

This morning I was lamenting the lack of setups for me with all the action going on. I missed out on AAPL, RIMM, CAL and some other good moves. Just then, I noticed that BIDU was setting up a nice bull flag on the 5 minute timeframe:

The narrow range candle at pivot point support from the prior day, the 5-ema close by, the narrowing range decline in price on declining volume, the flag retracing less than 38% of the first 15 minute OR–all of these pointed to a high probability setup in the long direction. The only red flag for me was the extended downtrend yesterday, which pointed to me that the longer term trend might be down, and a long play was counter-trend. The daily supported this, showing that the prior day’s decline was on very high volume:

The Trigger

I bought at market when price broke the high of the 6th candle on a volume uptick, filled at $183.15. I placed my stop below that candle and the pivot point support at $182.15.

Trade Management

Here’s the chart of the trade:

After the entry bar was completed, I was watching for a stall at the $184.60 level (the prior swing high), but we blew right through there. A very wide range bar printed, and I moved my stop to breakeven. I had visions of a 10R home run, with my ultimate target seeming oh so reachable. The next bar retraced 50% of the wide range bar (WRB). Strike 1. The next bar retraced even further. Strike 2. The $184.60 support didn’t hold. I’m outta there! Bailed for 0.58R profit. Pathetic since I was up over 2.5R at the top of the WRB. :p

The Takeaway

After this trade, I’m not sure whether I should be giving my trades more rope, letting it either get stopped out for breakeven or hit the ultimate target, or whether I should be watching for WRB’s and volume spikes and exiting more aggressively. Maybe both. Either way, I will not hang around with a trade that goes into the red right away and stays there. That’s just dumb, and it means I was wrong. It’s okay to be wrong. It’s not okay to be dumb.

Trade Summary:

BIDU Long
Entry: $183.15, Stop: $182.15, Target: $193.73
Exit: $183.73, P/L: 0.58R

Trade Grade:

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This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com