Tuesday, July 10, 2012

Coal stocks get burnt

I typed 'coal stocks' into Google today and one of the suggested search phrases was 'Coal stocks grossly oversold'. As I've mentioned many times here, overbought and oversold have no place in a trend follower's vocabulary.

Looking at the charts below of Patriot Coal (which filed for Chapter 11 bankruptcy protection today) and James River Coal, which I've successfully traded a number of times over the years, these show pronounced and profitable downtrends over the early part of this year. Now I don't know where you would consider at what point these charts show that the stocks are 'grossly oversold' but you can be sure it wasn't that it wasn't at current levels, but some way higher.

As a trend follower, you need to consider that trends persist for longer than many people think - you need to expect the unexpected. In these instances, simply following the trend would have left you nicely in profit. In addition, those who understand the trading system (either by referring to the e-book or by taking part on 1-2-1 training) would also have known to avoid the supposed long entry signals.
Yet again, simply following the trend in an unemotional fashion ends up with a profit that would cover any small losses and then some.

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