Trading for Dummies, Q&A #86 & #87

Akamai Technologies, 30-minute Chart

Questions:

1) Why would you be paying attention to this stock on Monday, November 24?
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 Monday, November 24?
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 12.14 on a buy stop above the 11:30 down bar.
4) Initial Protective Stop: 11.91. (max. 1.89%)
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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This was a classic trend day with strong up moves across the board. Trend days in the broad market are rare so you have to catch them when they happen, or at least make sure you're not on the wrong side. It would take a pretty stubborn person to stand in front of this obviously positive action.

AKAM was unusually active (it did nearly 16,000 trades on the day) and gave a nice low risk entry point. 2000 shares was a good size position to put on. The stock closed at $12.86 for a 5.93% gain from entry for a reward to risk ratio of better than 3 to 1.

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Antigenics, 30-minute Chart

Questions:

1) Why would you be paying attention to this stock on Monday, November 24?
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 Monday, November 24?
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 11.12 on a buy stop above the 10:30 inside bar.
4) Initial Protective Stop: 10.88. (max. 2.16%)
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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AGEN was another abnormal character (ending up doing 13,500+ trades on the day) that gave a good spot to get long. I did tighten up my initial stop after the 11 AM up bar (which I don't normally do but I am training myself to do), and the stock closed at $11.64 for a 4.68% gain from entry for a reward to risk ratio of better than 2 to 1 (or 4 to 1 from my upped stop).

Remember that good trading is all about managing risk. If you are entering a position without knowing where you are getting out when you're wrong, then you're sunk before you begin. Taking six ticks out of the bond futures is a pretty dumb idea unless you're prepared to get out when they go two or three ticks against you.

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