Trading for Dummies, Q&A #52

Pac-West Telecomm, 30-minute Chart

Questions:

1) Why would you be paying attention to this stock on Monday, October 20?
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 20?
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) Down. You'd be looking short.
3) Short at 3.31 on a sell stop below the 12:00 inside bar.
4) Initial Protective Stop: 3.40. (max. 2.72%)
5) Right after you enter the position or lunchtime, whichever comes first.
6) End of day. Could cover half, carry half, or just close it all at once.

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Much like the DCLK trade last Friday, PACW broke down violently in the morning and then reversed into the lunch hour. The narrow range inside bar at noon was perfect to execute against. If you were feeling like giving the trade extra room you could have placed your initial protective stop above the "shooting star" at 11:30, but that would have put your initial risk at greater than 6%... way too wide for my liking.

The stock closed at $2.84 giving a 14% gain on the day, with a reward to risk ratio of better than 5:1.

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Screen capture of my intraday Watch List:

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