Profit Punch of Small Price Moves
Michelle B submits:
Trading the second leg of two measured up legs separated by a bull flag is one my favorite trades, especially because the trade usually lasts only 30 to 60 minutes. In most cases, I will at least partially anticipate the breakout allowing me to keep a very tight stop loss.
What is noteworthy about this particular daytrade in PPL which I took Tuesday, March 27 is the smallness of the move. PPL is an electrical utility which got an upgrade premarket, and which I identified via the top gainers scan for the NYSE. Electrical utilities trading on the NYSE usually do not attract daytraders because intraday trading ranges are small. However, PPL made a new 52 week high and had high volume with a decent bid/ask spread.
Entering at 41.14 where the gently rising, one-minute 50 sma (blue line on the displayed chart) served as support and exiting at 41.46 resulted in only a .32 move. However, the stop loss was just .05, a couple pennies under the 50 sma support, so this small move packed a high R punch of 6. Because of such a small risk, I was able to trade a sizable lot resulting in a nice profit. So small can be big.
This post has 9 comments
March 29th, 2007
Hi Michelle,
I was in the same trade. I noticed that there were strong prints along with a buyer that wouldn’t go away at 41.05. I did the same by leaning on a 15 moving average. I think that these breakout trades are the safest for a small trader like myself. Low risk, high reward.
March 29th, 2007
Michelle,
nice trade. I’ve noticed you like flags/pendants from your previous trade examples. Just a few questions: do you always use 1 min charts? if your time reference for the tradeis 30-60 minutes why not use a longer interval like say 5 min. or 10 min?
March 29th, 2007
btw PPL on 03/27 was very similar to TGEN today - the chart formation, the timing, the volume lull, pendant formation, etc.
Check it out.
March 30th, 2007
tradercowboy, thanks for the feedback. Yes, the support at 41.05 held nicely with buying continuing to accumulate at that level.
I consider my PPL trade to be a continuation long trade rather than a breakout one—just the way I wrap my head around the mechanics of the trade. Intraday, I want price strength/weakness on the board already and clearly shown before I enter. One price leg already in the bag shows the potential direction on which I can ride (in true cowboy fashion!). And I usually enter the bottom/top of the consolidating flag, rather than waiting for an actual breakout.
I do some authentic breakout trades also, but they are pretty uncommon. Usually they are on stocks which I noticed from the hi/lo ticker late day. The price action is basing at some resistance level on various timeframes, both intra and longer term. Then the next morning, the stock just take off without looking back for about 30 minutes. I get in first thing as the volume picks up and the resistance is taken out. These kinds of trades go against my strengths so it is rare that I take them, but every once in a while they are so clear, that I do.
EDIT: I just checked out your blog which is excellent. You have a nice, calm and steady approach. I noticed that you trade mostly NYSE stocks. I trade them seldom, and I will read your blog to see how I can expand my trading to include candidates from that exchange.
March 30th, 2007
Babak, thanks.
I consider myself a timeframe slut–I use them all! For each and every trade, I look at the monthly, weekly, daily, hourly, 30 minute, 15 minute, 5 minute and 1 minute (sometimes the 3 minute also). Each timeframe gives me info which I can apply to the successful entry, management, and exit for the trade in question.
One difference with TGEN is that the daily chart shows price action, though extremely strong, far away from 52 week highs, while PPL broke out to a new 52 week high. Another difference is that TGEN was a big percent mover. Yet another difference is that the second leg up was smaller because of the formidable price level resistance from the daily at 4ish. It had to base again before the third leg up (it got some juice from the late day rally). So if one had a crystal ball it was best held from noon to the close.
Speaking of small biotechs, DNDN should light up that sector tomorrow. I had positioned myself in AGEN, and sold some in AH yesterday after the positive DNDN news came out and AGEN went up 15% in sympathy!
BTW, Babak has linked to Maoxian’s old site which I had always wondered about, it was like some buried treasure that was referred to but not found.
http://www.tradersnarrative.com/maoxian-before-the-advent-of-dummy-trading-759.html
March 30th, 2007
Michelle,
Nice analysis and nice trade. It’s nice when they are so clean, eh?
Also, the position sizing issue you bring up is so important. Lots of traders I know start every trade with their “default” size and I feel this is a big mistake. Were you to start with a smaller position in this stock, you may feel tempted to buy more later and screw up your overall price. Better to start with a larger position (as you did) and expect a smaller move in the less volatile stock.
Thanks, DT
March 30th, 2007
DT, thanks for your comment. I do trade very volatile stocks also, and I will size my lot accordingly. Each trade is different, and the trader needs to identify his risk based on how each stock trades.
March 30th, 2007
Hi Michelle,
Nice post and trade. I was curious on how you chose your exit?
Thanks
March 30th, 2007
Wondering Jew, I love your ID! When I lived in NYC, a Wandering Jew was a favorite houseplant of many.
I exited when my target which was based on a measured move was reached.