Today, for the first time ever, I became a shareholder of Noble Group. I will confess that I do not understand the business and that going long here is taking on quite a bit of risk. Then, why did I do it? Let me share with you what's on my mind.
The share price of Noble Group is, undoubtedly, in a downtrend. I drew two trendlines, one connecting the lower highs and one connecting the lower lows. A down channel becomes quite clear. I see the channel support at $1.78 and that explains why I put in a buy order at that price, which was filled in the late afternoon today.
That a big black candle formed on the back of heavy volume is very ominous and it would not surprise me if the share price were to sink even lower next week. So, why take the risk of going long now? Why did I not cancel my buy order? After all, it was only filled late in the afternoon.
Well, the fact that the share price tested channel support alone would not have enticed me to enter. The MACD which looks like it has a nice chance of forming a higher low is an important factor too. Therefore, even if the price were to sink lower, as long as the MACD forms a higher low, we would have a positive divergence.
Am I not pre-empting then? Yes, I am and, yes, I agree that disciplined traders should not do that. I have said before that I am not a good trader and this is still true. After all, there is a chance that the MACD could form a lower low which means no positive divergence.
If the share price were to move higher next week, I would use the declining 20dMA as a guide to determine a price for divestment. Price could move higher to test resistance as provided by the trendline as well. I guess it is up to the individual to decide how much risk he is willing to take and how much gain is enough for him.
In the event that the share price were to move lower, I would not rush to average down my price, I would wait and see how things develop. Losing money in a trade is not as bad as losing our cool because of one.
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