Monday, September 12, 2011

15 of the very best!

Please note that I take my entries off the 5 min chart. I generally make two kinds of entries. Straight take out of levels or off of intra-day consolidation.

If I am looking for a straight break of a level my stop will most likely be the low of the day. I will not take the trade if the distance between my entry and target is not greater than 2 times the distance between my entry and stop loss and preferably greater than 3. For instance, lets say $YOKU opens at about $20.10, consolidates for about 15 - 20 mins with the highs of the consolidation (high of day) being $20.35 and then it starts attacking $20.00 with the markets selling off. Assuming that I am using the next whole number $19.00 as my target, I will take the trade. Because the distance between my entry and target is $1.00 ($20.00 - $19.00) which is more than twice the distance between my entry and stop loss of $0.35 ($20.35 - $20.00). If instead the high of the day were $20.60 meaning my stop loss would be $20.60 then I would pass on the trade since I would be risking 60 cents to make a only dollar. For straight breaks I just set alerts and when they trigger I go through the process outlined above to determine whether or not I take the trade. Most often these trades trigger right off the open with in the first 15 - 30 mins after the open. An example of this which I had on watch last night and tweeted this morning was $ULTA: entry was $68.70 w/ $67.95 stop loss and 1st target of $70.00 and then $71.00. Played out text book! An example of one I did not take because of poor risk/reward was $P take out of $11.00 on the 9/9, because $11.50 stop w/ $11.00 entry and $10.50 target was only 1:1! So I passed!

If I am not looking to play a straight break out then I like to wait for an intra-day set up/consolidation. I often use the top of the consolidation as the entry trigger and the low of the consolidation as my stop loss. I use resistance levels on the daily chart/ 30 min chart and round numbers to determine targets. So again, it the risk/reward is better than 2:1 on the initial target then most times I will take the trade if the markets are also trading in line with the setup. An example of this type of entry/set up would be $GMCR from last night's watch list. After pushing to new highs on the day at 2:45pm it moved sideways for the next 40 mins or so while the overall markets were dipping after breaking their intra-day downtrends. The high of the consolidation was about $108 with the lows being $107. The next level of resistance coincided with the round number $110 which made for a perfect initial target. So the risk/reward on the trade was about 2:1 which met the threshold. Around 3:30pm the stock broke out and tapped the resistance level right at the close. At this point it was prudent to take part of the trade off holding a partial over night as both the stock and the markets were closing right highs.

Hope this helps...Good luck and good trading!

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