"I trust all is well with you. I know as a rule you don't comment on individual stocks. This is not my intention. Treat this as a case study in Technical Analysis (TA). The stock is South Boulder Mines (STB) to be found in the Australian Resources section of your Chart Library. I got into it on 20/10 on breakout. Thereafter it languished for a few days and then went for a gallop. At around the 1.90 level it looked very overextended relative to the 200MA along with topping tails on 3/12 and 7/12, signaling a pullback. This is when I decided to bail out, feeling really clever. Well, this feeling of elation was short lived. Since then STB has defied gravity and TA dictums. What does one learn from a case like this? What would you have done?"

Eoin Treacy's view Thank you for this query and I agree that South Boulder Mines offers an interesting teaching example. I am reluctant to say what I would or wouldn't have done because I wasn't involved in this trade. However, let's attempt to reason our way through the price action.

South Boulder Mines has a spotty earnings record which puts it on the more speculative side of available precious metal miners. Following a more than 200% advance it now has a market cap of A$194 million which is still a fairly small cap share. Investors generally tend to favour small caps because of their potential for outsized gains, once they begin to attract inflows and STB has been a prime example of this. Therefore, I'm not sure it is correct to assume that the share is defying logical expectations. If this were a major large cap, occupying a significant weighting on the ASX, it would be a different story.

STB offers an excellent technical example of a Type-3 (ranging, time and size) base completion followed by a 1st step above that base as taught at The Chart Seminar. A 1st step above the base is often a reliable continuation pattern because the price action clearly demonstrates that something has changed in how supply and demand are interacting but sentiment is still ambivalent and investors remain unconvinced. In such circumstances, many will wait for confirmation of a new bull trend and will seek to buy the breakout as you did.

At The Chart Seminar, we refer to ranges as explosions waiting to happen and STB has undoubtedly exploded. It is impossible to know exactly how high a market is going to rise so we have to have tactics for dealing with this uncertainty. You did not mention what your rationale was for initiating the position. I assume from your short holding period it was to trade the opportunity presented by the breakout. Therefore deciding to take the profit following a 100% advance is reasonably justifiable. Don't beat yourself up over the exceptional gains because you did well in buying the share to begin with.

Pre-empting the market leaves us open to missing further potential gains but locks in profits. There is always going to be a tug-of-war between maximising available profits and availing of further capital appreciation. The upside tails were short-term concerns but could equally have suggested that a consolidation was beginning. The completion of the 1st step above the base suggested that a new medium-term bullish phase had begun, so any reversion to the mean defined by the 200-day could have been expected to occur above the previous range.

I would like to introduce another technique from The Chart Seminar, which is commonality. If one looks at other small precious metal related miners, most were performing similarly and the gold price remains firm, so there was no external factor to suggest the advance was over.

Perhaps the more technically justifiable technique would have been to place a stop below the progression of rising lows. If these had been broken it would have offered some technical evidence that supply was returning to at least short-term dominance.

STB has just had a much larger pullback, from a higher level, than any seen in the course of the three-month uptrend. It found support near A$2.30 yesterday and rallied well today. Speculative traders might be inclined to initiate long positions once more, on the understanding that the risk of a further pullback and consolidation of recent gains is now substantially higher than it was in November. If one were to adopt such an attitude position sizes would have to be adjusted accordingly.