Trading for Dummies, Q&A #76 & #77

Sonus Networks, 30-minute Chart

Questions:

1) Why would you be paying attention to this stock on Thursday, November 13?
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 Thursday, November 13
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 9.36 on a buy stop above the 11:00 inside bar.
4) Initial Protective Stop: 9.23. (max. 1.39%)
5) Right after you enter the position or lunchtime, whichever comes first.
6) Stopped out on 4:00 bar.

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SONS was unusually active doing about 17,500+ trades on the day. The inside bar at 11:00 provided a nice spot to get long with only 1.39% at risk. After initially moving up, price broke sharply on the last bar and the position was stopped out for a loss. It would have been smart to tighten the stop loss up to $9.31 after the noon bar formed, which would have reduced the loss to half of one percent.

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JDA Software, 30-minute Chart

Questions:

1) Why would you be paying attention to this stock on Thursday, November 13?
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 Thursday, November 13?
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 19.44 on a sell stop below the 12:00 inside bar.
4) Initial Protective Stop: 19.59. (max. 0.77%)
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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JDAS dropped pretty hard from the get-go and the narrow range bar at noon provided a perfect spot to get short beneath. Initial risk was less than one percent. As I've mentioned in many lessons before, when your initial risk is that low you can really load the boat -- a 3000 share position was a good size here.

The stock closed at $17.12 giving a gain of 11.93% for a reward to risk ratio of better than 15:1.

Intraday sentiment was a little mixed, with one indicator saying up, the other flattish to down. Thus it was possible to play both the long and the short sides without violating any basic trend-following principles.

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Screen capture of my intraday Watch List:

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