Trading for Dummies, Q&A #61

China.com, 30-minute Chart

Questions:

1) Why would you be paying attention to this stock on Tuesday, October 28?
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 Tuesday, October 28?
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 9.89 on a buy stop above the 11:30 inside bar.
4) Initial Protective Stop: 9.76. (max. 1.31%)
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.

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CHINA jumped strongly along with the other Chinese internet stocks (SINA, NTES, SOHU, etc.), but CHINA stood out because it was about 10 times more active than normal. The inside bar at 11:30 provided a very pretty spot to get long while risking only 1.31%. The stock closed at $10.40 giving a gain of over 5% from entry, for a reward to risk ratio of about 3.8 : 1, which is very fine.

I've had quite a few questions about how I look at the broad market moves intra-day and how that affects my thinking. The answer is that I look at "sentiment" intraday to know if there's optimisim or pessimism, understanding that this is generally not sentiment you want to fade.

Over the last two days the sentiment has been very positive and the long side obviously has been very kind. Last week on Wednesday, Thursday, and Friday (until the last hour) pessimism ruled the day and the short side was the place to be.

Indeed, during the month of October there were very few days where the broad market sentiment was even slightly bearish, and you can see by reviewing the Trading for Dummies lessons that the long trades were generally much more profitable than the shorts during this time.

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Screen capture of my intraday Watch List:

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