Trading for Dummies, Q&A #68 & #69

priceline.com, 30-minute Chart

Questions:

1) Why would you be paying attention to this stock on Wednesday, November 5?
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, November 5?
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 22.29 on a sell stop below the 12:00 noon inside bar. (explanation below)
4) Initial Protective Stop: 22.55. (max. 1.17%)
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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Broad market sentiment turned negative on Tuesday morning so I've been focusing on the short side the past couple of days. (It looks like CSCO's earnings release after the close on Wednesday has shifted sentiment back to positive though.)

PCLN gapped violently lower, but I still liked the idea of getting short despite the fear of price snapping back against me. Unfortunately price reversed shortly after I got short and I was stopped out on the 11:30 bar. The loss was 2.34% on 1000 shares. (21.79 entry, 22.30 exit)

A big problem when you get jammed out like this is feeling the need to avenge your loss by immediately re-shorting it. This is the kind of emotional play that has sent many a novice to the poorhouse: the old double-down phenomenon. However patient players will unemotionally wait for another opening to get short, which happened with the 12 noon inside bar in PCLN.

The gain from entry on this second attempt was 2.87% on 2000 shares. I was able to double the position (yes, double down, lol) based on the tighter initial stop, which made it a rewarding day in PCLN despite a poor start.

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ADTRAN, 30-minute Chart

Questions:

1) Why would you be paying attention to this stock on Wednesday, November 5?
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, November 5?
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 66.89 on a sell stop below the 11:30 up bar.
4) Initial Protective Stop: 67.51. (max. 0.93%)
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.

..........

ADTN by comparison was a much more straightforward play since it didn't have as severe a gap down as PCLN did. The 11:30 up bar provided a sweet spot to get short beneath with initial risk at less than one percent. When initial risk is that low it provides an opportunity to take a large position: 800 shares was a good amount to sell here given my risk tolerance.

The stock closed the day at $65.05 for a gain of 2.75% giving a reward to risk ratio of 3:1, which is outstanding. Just keep attuned to intraday sentiment, stifle the urge to fade it, find something that's rocking and rolling in the right direction, apply Trading for Dummies execution techniques, and manage your risk.

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Screen capture of my intraday Watch List:

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