Trading for Dummies, Q&A #62

OmniVision Technologies, 30-minute Chart

Questions:

1) Why would you be paying attention to this stock on Wednesday, October 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 Wednesday, October 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.
2) Up. You'd be looking long.
3) Long at 56.41 on a buy stop above the 12 noon down bar.
4) Initial Protective Stop: 55.89. (max. 0.92%)
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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OVTI provided a perfect narrow range down bar at noon to get long above. As I've written in previous Trading for Dummies lessons, executing off a narrow range bar is ideal since you risk next to nothing. The stock closed at $59.15 for a gain of nearly 5% from entry with a reward to risk ratio of better than 5:1, which is a very happy ratio indeed.

Yesterday I talked a bit about the value of being in touch with intraday sentiment. The market continued to appear bullish today if you looked at the sentiment numbers so it was smarter to look long and eschew the short side. What are the indicators I look at? The same stuff everyone else watches: TRIN, TICK, VIX, intraday put/call ratios, etc.

Even though OATS popped up as a candidate to trade, I thought that it probably wasn't worth stalking on the short side since it's best to have the wind at one's back. (The same goes for GILD, MUSE, MANH, and other slumping abnormal characters.)

You can see by looking at the chart of OATS below that stalking it on the short side would have been frustrating and ultimately would have proved to be an exercise in getting stopped out.

Wild Oats Markets, 30-minute Chart

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Screen capture of my intraday Watch List:

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