Pharmos, 30-minute Chart
Questions:
1) Why would you be paying attention to this stock on Monday, October 13?
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, October 13?
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 2.98 on a buy stop above the 11:00 inside bar.
4) Initial Protective Stop: 2.84. (max. 4.70%)
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.
Setting initial protective stops in these drillbit stocks is difficult when they begin to fly. A 4.7% stop is way too wide,
so moving the stop to $2.91 once the 11:30 bar completed would have been the way to go. That would give you an acceptable risk of 2.35%.
The end of day reward was over twice the 2.35% risk. You want a reward to risk ratio of at least two to one and ideally much larger
(see E-Loan trade below).
E-Loan, 30-minute Chart
Questions:
1) Why would you be paying attention to this stock on Monday, October 13?
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, October 13?
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 4.25 on a buy stop above the 11:30 inside bar.
4) Initial Protective Stop: 4.19. (max. 1.41%)
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.
EELN had a much more acceptable initial risk of only 1.41%. Indeed if you were super risk-averse you might have moved
the stop to $4.22 upon being filled, cutting your risk to under 1%. Ending the day with a 4% gain gave you a reward to risk
ratio of better than 4:1 assuming you placed an aggressively tight initial protective stop, and better than 2:1 with the
"loose" stop.
Screen captures of my intraday Watch Lists:
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