Trading for Dummies, Q&A #89

8x8, 30-minute Chart

Questions:

1) Why would you be paying attention to this stock on Wednesday, November 26?
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 26?
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 5.19 on a buy stop above the 10:30 down bar.
4) Initial Protective Stop: 4.94. (max. 4.82%)
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.

..........

Sentiment continued to be positive so the long side was the place to look for opportunities.

The scanner turned up two candidates that turned out to be wildly successful: NTOP and EGHT... I happened to go with EGHT because it was the earlier of the two to offer a sweet spot to get long, but I was alerted to both.

Everyone and his grandma was obviously trading these -- inquiring minds want to know how. Let me tell you the way I played it.

Initial risk was 4.82% so 2000 shares was a good size position to take. I cut my initial risk in half after the 11:30 bar formed (yes, I am being good about tightening the stop once the initial risk is covered), but it didn't really matter since this stock caught on fire in the afternoon.

EGHT closed at $6.79 for a 30.83% gain from entry, giving a reward to risk ratio of better than 6 to 1 from the initial stop. It's unusual to catch this kind of huge run but it's nice when it happens.

Trade with the trend, have a protective stop in place in case the trade goes wrong, let your profits run, and manage risk.

..........

Screen capture of my intraday Watch List:

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