Trading for Dummies, Q&A #78 & #79

Portal Software, 30-minute Chart

Questions:

1) Why would you be paying attention to this stock on Friday, November 14?
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 Friday, November 14?
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 8.44, 8.57 on sell stops below the 10:30 and Noon inside bars, respectively.
4) Initial Protective Stop: 8.86. (max. 4.98%) / 8.69 (max. 1.40%)
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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I've adjusted the scale on the PRSF chart so the bars are visible. When a stock gaps down as violently as PRSF did the bars become scrunched and you have to manually adjust the scale. In any event, PRSF was similar to my recent play in PCLN.

The initial stop was wide at nearly 5% so it was smart to size the trade at 1000 shares. The noon bar then presented a good spot to lower the stop, and if you were inclined, to short more shares. Since the noon bar gave a chance to risk only 1.4%, it was possible to short another 3000 shares below it, keeping the expected loss in my comfort zone by moving the stop down to $8.69 on the whole position.

The stock closed at $8.40 which gave a gain of 1.61% from the combined entry, so it was a failed trade (reward to risk of 1:1). Yes, you can make hundreds of dollars and still consider a trade a failure. People who make $2 while risking $2 don't last long in this game.

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Superconductor Technologies, 30-minute Chart

Questions:

1) Why would you be paying attention to this stock on Friday, November 14?
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 Friday, November 14?
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 6.02 on a buy stop above the 11:30 down bar.
4) Initial Protective Stop: 5.90. (max. 1.99%)
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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SCON was a straightforward long play. 4000 shares was a decent size to buy given the initial risk of around 2%. The stock closed at $6.41 for a gain of 6.48% from entry... reward to risk at better than 3:1.

Everybody knows the four cardinal rules of trading, but so few people follow them:

• Trade with the trend
• Cut losses short
• Let profits run
• Manage risk

Intraday sentiment started the day flattish to down then broke quite hard in the afternoon with a burst of selling. This helped the PRSF position out but was detrimental to the SCON long.

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Screen capture of my intraday Watch List:

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