Game Planning
Let's first start with the amateur game plan because we have only heard them 10,000+ times. Here is the general theme; the stock already had a majorly extended run. Usually they have an earnings report in the next 24 hours, or major news where they are fighting the trend (trying to short a gap up or buying a gap down). To professional traders, this is all around day 1, dumb shit. When we ask what's your game plan? 99% of the time it's simply to sell at an imaginary price that is higher than where they bought it.
Always have a written game plan
Now it is very true that the chart tells the story. It’s just that most amateur traders can’t read the story! For this reason, we employ the Odd Lot Indicator which is probably the only indicator that I stand behind and it’s quite simple. Amateurs lose money, do the opposite or get away from what they are trading- and your odds are greatly increased. What do amateurs love? Cheap stocks, stocks they can't explain, stocks that get cheaper --- all things you could not pay us to trade. That is why it is a must to know why you are in a trade and where you will exit. Let's go through two recent game plans, one that I fucked up and one that I did very well with.
(Click on image to see a larger chart of GRFS)
We can see a pretty decent level of resistance right? $22 has been an area of resistance for quite some time and has been putting in higher lows (we like higher lows). Now this is what we call The Sneaky Buy Buyback which is when a stock breaks out of a major level as it did in November, only to come back and shake a few people out; just enough to get it off most people’s radars before sneaking back up through to new highs. So my Game Plan was as follows :
Entry $22.01
Stop $21.24 (below low of pull back and support trend line)
Target $24+
Wait I thought you fucked this trade up? You bet your ass I did and let's take a closer look how I fucked up this lay up 10%+ swing.
(Click on image to see a larger chart of GRFS)
So day 1, the stock looks great. The trade triggers through $22 on strong volume, closes above the figure, good sign. On day two, we get a little indecision (doji) however it’s still holding above the figure, so it’s a decent sign. Now I decide to limit my risk with a stop below the figure, limiting my risk from around $.75 per share in the name, now to around $.05-$.10 in a trade that can still yield $2-$3+. This is where the trade off comes in on limiting your risk. I changed the plan and got shaken out for breakeven. Yet it traded just how I planned it. Does it suck to miss the 10% move? Ahh a little, however it won't be the first or last and I lost nothing monetarily. However, I learned a valuable lesson as a result.
Hunt for roses and you're bound to get pricked
Now let's look at a swing where the stock greatly exceeded my initial game plan and tweaking the plan helped me squeeze a ton of juice out of this 30%+ swing.
(Click on image to see a larger chart)As you know we are a big fan of major levels of resistance and NBIX was a fucking Mona Lisa on the daily. My Game Plan was as follows :
Entry $54.01
Stop $51.89 (prior day’s low)
Target $60+
Average winners, not losers
Now as you can see from the chart above, the green circles are buys and red circles are where was I was selling. So the initial buy works great and reaches the target, however I still expected a bigger move. The name started to pull in and hold above $56. At this point I moved my stop to breakeven and was getting ready to add. I was able to bid into $58 and then add to my position again up through $60 a few days later, as the name ripped back to prior highs.
The best traders we know, keep their routine very simple
Now this is the one part you do not want to jump into, holding through earnings. For myself, as a longer term trader I will hold through earnings when I have a big cushion in a name. By cushion, I mean that I bought the stock weeks ago and am up a large percentage in paper profits. That way, if the stock viciously gaps down on earnings, I am only giving back PROFIT. I am not losing cash, only profit.
Now, back to the trade. I was right, I cannot immediately sell just because it gapped up. Let's take a closer look so you can see what I am talking about.
(Click on image to see a larger chart)
After the dust settled on the earnings day, NBIX continued to creep higher, however it just didn't really have the momentum to break $72. Each day I was moving my stop up vs the prior day’s low. At this point I am up around 37% on the swing and get stopped out for a 35% win that took around two months. After that I took a few more quick trades in it before getting out the day before the last monster leg in it (see that red circle furthest right). Could I have been a cowboy and still been in or had bigger balls? Sure, however I took the profits made and put them to work in other names while NBIX flagged for another month and a half before going on the next leg. The initial game plan was to make around 10% and by adding to my winner I was able to take home more than 3.5X what I had planned to.
Rules are ever changing
You have to take the good with the bad and realize that the stock is going to continue to trade after you get out, it will trade higher than you can imagine, and push lower than you could ever dream. If you think trading is about buying lows and selling tops, you’re a sucker. Game plan, read charts, formulate an A+ set up and execute it. Very easy to look at a chart and say you would have bought here and sold there. It’s a much different game once you have to click the button.
Do you have balls?
Your goal here is to attempt to formulate a simple game plan. To do so, find your top 3 favorite stocks that you feel are setting up. Post a screenshot of the daily chart along with, the ticker, your entry, your stop, and your target.
Expect honest feedback from your mentor. If the trade is an A+ set up, trust me we will be the first to tell you and even take the trade with you, if it's a dud do not get discouraged. Realize that to put together the average Shakedown newsletter Shake looks through over 1,000 charts, of those 1,000 setups less than 2% make it in.
POST IN THE WHAT’S NEXT CHAT