Sonus Networks, 30-minute Chart

Questions:

1) Why would you be paying attention to this stock on Thursday, October 9?
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 Thursday, October 9??
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.
2) Up. You'd be looking long.
3) Long at 9.10 on a buy stop above the 10:30 inside bar.
4) Initial Protective Stop: 8.75. (max. 3.85%)
5) Right after you enter the position or lunchtime, whichever comes first.
6) End of day. Could sell half, carry half, or just close it all at once.

Again the initial protective stop of 3.85% is wider than I like, so being a little more aggressive about moving the stop up would have been wise. I may have moved the stop up to 8.96 once filled, bringing the risk down to around 1.5% which is an acceptable amount. With an 8.96 stop I would have been stopped on the 2:00 bar. By staying back at 8.75 I was never stopped out, but closed the position at a worse than 3% loss at the end of day.

The one good thing about losing money is that it gives you a pretty good sense about changes in market direction: when longs don't work out it means the market may be shifting direction down, and when shorts don't work out it means the market is still strong.

Remember the NTES short on the 29th where I was almost immediately stopped out? That gave me a good sense that there was still some strength in the market, and it turned out that the 29th marked a recent low for many stocks.

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