Trading for Dummies, Q&A #67

Red Hat, 30-minute Chart

Questions:

1) Why would you be paying attention to this stock on Tuesday, November 4?
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, November 4?
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 14.20 on a sell stop below the 10:30 inside bar.
4) Initial Protective Stop: 14.45. (max. 1.76%)
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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RHAT broke down on high volume and gave a nice inside bar at 10:30 to execute against. Initial risk was a very acceptable 1.76% so a 2000 share position was possible. The stock closed at $13.58 giving a gain of 4.37% from entry, for a reward to risk ratio of 2.5 : 1, which is sweet.

Back in September I wrote about a long trade in RHAT. I mention this to forestall being deluged with the "this is a great stock you rotten short-seller" emails that I invariably get whenever I write about a short trade. The truth is I don't have any feelings about RHAT or anything else that I trade, it's just a ticker symbol to me. RHAT could sell Red Hats for all I care. As long as it's active and volatile and gives me a bar to execute against, I'm going to be there, long or short.

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Screen capture of my intraday Watch List:

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