When you look at this daily chart of OKS, can you see any area of resistance?
An area that the stock is having a hard time breaking? This is usually the result of a seller/ or sellers who are offering more stock to sell at that price than buyers can afford to buy.
The answer is the $42.50 area. Think of resistance as Warren Buffett, he's not in OKS but just for this example’s stake. We're the little guys, you, me and the rest of the market wanting to buy OKS. It takes a lot of us little guys to buy what Buffett is selling. Say he's selling 1,000,000 shares at $42.50. First time it gets up there, in total the market (buyers) buy 100,000 shares of that 1 million share offer, then the 2nd, 3rd, 4th time buyers keep buying more but he's still there selling his stock.
Eventually Buffett sells his stock and moves on and if the buyers continue to buy and break the seller then the stock is off to the races. Since we understand chart reading, we can see these patterns forming and we aim to buy "after" it breaks- not before! So resistance is $42.50 right?
Correct.
Ok, no problem, we (Trading Experts) are buyers when the seller breaks, $42.51 ticks and we’re in! In this case, the buyers continued to bid the stock up 10 days in row! On the 10th day a new seller came in at $47 as you can see it flush up to $47.
Now this time it's different, the last 9 days, the buyers were in control. Look at these big green candlesticks, opening above the prior day's low and trending higher. A sign we love to see, this is probably the Mona Lisa of our swing trades this year because it was a textbook trade.
On the 10th day of this rally, the buyers could not bid the stock up any longer and the sellers took over. Remember we trail our winning trades versus the prior day's low.
So let's take a closer look at trailing a winning position versus the prior day's low.
As the swing trade starts to break out and trend higher, we are moving our stop up (red dashed lines) to the prior day’s low. We kept doing this as the trade worked in our favor. By Day 3 of the swing, our stop was a profitable stop, so even if it failed we would have made money. With our target being $46+, OKS went as high as $47 and based off our trailing technique we got stopped out at $45.99!
Remember our "Trade of the Week" Game Plan, as you can see below.
Now did we know $47 would be the top? Not a clue, we just had a game plan and stuck to it. This trade played out perfectly for an 11%+ gain in 10 trading days. Could it be the same seller or a new seller coming in at $47? Maybe, maybe not, we really don't care/ don't know. We just know it's time to leave the table while we're hot. Take our 11% gain and move on. Trading can be simple if you make it simple. We hear all these crazy, elaborate ideas from new traders and it's just too much.
Our idea was as simple as "there's a seller at $42.50, bullish pattern forming, aiming for 5-1 risk reward or better, original stop at $41.99 (risk $.50 per share), trailing vs prior day's low as it works in our favor."
As a result we were able to squeeze $3.50 per share out of this stock for 7-1 risk reward from our original risk. The position was always profitable from our entry! Now we can sit on a beach with a stiff drink under a palm tree while the traders without a plan are sitting through the pain as OKS pulls back to resistance which will/should start to become an area of support.
Do you have balls?
Let's really hammer this idea down, in the Chart Reading Group chat post another 3 examples where trailing vs the prior day’s low would have got you out right before the stock reversed a major breakout.
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