Trading for Dummies, Q&A #33

Netease.com, 30-minute Chart

Questions:

1) Why would you be paying attention to this stock on Monday, September 29?
2) Is the trend up or down? Would you be looking to get long or short this stock?
3) Where would you get long/short this stock on Monday, September 29?
4) Where would you put the initial protective stop?
5) When would you stop trading for the day?
6) Where would you exit the position?

Answers:

1) Because it was unusually active, and very volatile.
...(showed up at 10:18 as an Abnormal Character)
2) Down. You'd be looking short.
3) Short at 52.80 on a sell stop below the 11:00 bar.
4) Initial Protective Stop: 54.32. (max. 2.88%)
5) Right after you enter the position or lunchtime, whichever comes first.
6) Stopped out on 12:00 noon bar.

This is a good example of being caught short on a reversal day. Although the trend was clearly down at the beginning of the day, it later flipped up. If you didn't have a stop in place, you would have been in some serious pain since the stock closed up over 12% above the short entry. If you take 12% losses you're not going to last in the trading game very long.

Ideally you would have gotten long off of that 11:00 AM inside bar, but that's just a fantasy play. You have to play your game, and your game is not countertrend trading. Sometimes you get jammed on a reversal day, those are just the breaks. Take your small loss, be happy, and move on.

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