Spot gold is moving higher this morning, which should reverse the move lower in the past few days, in some gold stocks. The HUI - Gold Bugs Index, broke out on the monthly chart, and retraced back to the trendline break.

With a retest in place, you’ve got some recent lows to use a stops. I’m going to enter at least a 1/3 of what I’m planning on holding here. AEM, GG, AUY, MDG, KGC, RGLD, GOLD, and GDX (ETF) are some of the gold stocks on the watch list. PAAS and SSRI are two silver stocks that shuld be watched too. Check out the Gold Stock Bull’s recent analysis on the sector for some more insight.

A trader never knows what patterns are going to work. You’ve got to take each one with your risk defined, and let the trades do their thing. Here’s the start of two trades that recently gapped higher, pulled back four bars, and then put in a buy signal on the 5th bar. A classic trading pattern is in play.

In both examples, a stop is placed under the pivot low. This would be under the 4th bar in the first trade, and 3rd bar in the 2nd example. Risk is defined as R. You then set your targets, and wait to see if the market awards you or not. The goal isn’t to be correct. The goal is to have more winning R’s than losing R’s after an extended period of time. One trade, doesn’t make or break the trader. It’s the succession… the marathon that counts.

So let’s see what happened to those two trades. The two stocks are TELK and AVNR. Yesterday, I was stopped out of TELK, in a trade I took using an hourly chart. The stock has taken a tumble since I was stopped out for a little over 1R (included some slippage) loss. R = .10 I managed the trade and moved on.  No emotions.

AVNR was a textbook trade today. Shallow pullbacks, followed by surges higher. There were entries using the 5th bar, 8th bar, or 13th candlestick. R = .25 using the 5th bar. This trade had a potential 5R reward. If you were to add to the trade (an aggressive move), with each consecutive buy signal, the potential R gains become even higher. So keep those losers small. Protect your capital. You don’t have to be correct all the time to have a green P/L. Manage the losers, and the winners take care of themselves. …and that’s worth repeating… Manage the losing trades, and the winners will take care of themselves over the marathon of trading.