Thursday, September 27, 2012

Shanks Group - mind the gap!

I've posted many times before about the need for appropriate risk control, and the potential danger of a stock gapping through your intended stop level. Such an occurrence happened to me yesterday when UK stock Shanks Group gapped down on a disappointing trading update.

I had been in this stock for several weeks, and for those who like chart patterns this was showing a nice 'bowl' formation, and a consolidation period over the last few weeks. My trailing stop (as indicated on the chart) had caught up with the price action and was just below the price immediately prior to the gap down.

This created a loss to my equity of -1.7R. Further proof, if any was required, that you need to factor in these potential events when deciding how aggressive you want to trade your equity, and that the unexpected can (and does) happen.

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