Trading for Dummies, Q&A #82

Futuremedia PLC, 30-minute Chart

Questions:

1) Why would you be paying attention to this stock on Tuesday, November 18?
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 18?
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 0.60 on a buy stop above the noon bar.
4) Initial Protective Stop: 0.57. (max. 5%)
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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FMDAY has been unusually active for the last two days. I ignored it on Monday because I thought the market was going down and I didn't want to play an up stock. Yesterday morning the bias was up (before turning decidedly ugly in the afternoon) so I kept an eye on FMDAY, looking long.

The stock coiled tightly into the lunch hour and provided a spot to get long with a remarkably tight stop (for a drill bit stock like this one). Initial risk was 5% so it was possible to get long around 15,000 shares. The stock closed at 0.68 for a gain of 13.33% from entry giving a reward to risk ratio of better than 2.5 : 1, which is fine.

Remember that you you have to manage your risk carefully, especially in these penny stocks. Wait for a spot to get long where you can define your potential loss and make sure you size your position correctly. Look at the bias in the broad market, find an unusual suspect, trade with the trend, wait for your spot, set your stop, manage your risk.

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Screen capture of my intraday Watch List:

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