Tuesday, November 21, 2006

Dummy Trade of the Day - NVIDIA Corporation (Public, NASDAQ:NVDA)

NVDA traded up in pre-market but started showing a lot of weakness just prior to the open. This is a DOA (dead on arrival) setup. Short on a break of the pre-market low with a stop just a penny above the pre-market high. So the initial risk was about 30 cents. My target was $35.60 which matches up with support and the 10 day EMA on the daily timeframe. By mid-afternoon that target started to look too optimistic so I tightened my stop and was stopped out at $37.00.

The AAPL long was a break of the third bar high. This is another stock I was watching in pre-market. The first two bars were doji like (indecision). The third bar rallied and closed on its high so I went long on a break of the third bar high. I had to leave my desk for an extended period of time so I decided it was safe to move my stop to break-even as price approached $88.00. Big mistake. If my entry was correct and I believe it was, I should have left my stop below the low of the previous bar (third bar). That would have saved the trade. So a nice strategic, dummy entry and a real dumb, dummy stop.

6 comments:

Simply Options Trader said...

Jamie,
Your AAPL trade will serve to remind us that having a good entry is not suffice. Where we place our stop can also make or break the trade.

I sometimes see that you enter on break of pre-market high/low e.g. this NVDA trade. Under what kind of circumstances do you do that?

Jamie said...

I look for stocks trading in a narrow range in pre-market and buy the open on a break of the pre-market high or low. I only do this with highly liquid NASDAQ stocks. These trades are planned ahead of time based on an analysis of various time frames. On the NVDA trade, I originally planned it as a long entry. But the last 15 minute bar just before the open looked like a bearish engulfing pattern, so I changed my setup to short. Failures generally result in fast moves so it worked out okay.

Agree 100% on your AAPL comment.

lbcando said...

Thank you for posting the aapl trade. I did the same thing..I did take a little off before the BE stop. Knowing I am not the only dummy around helps, but so you don't feel too bad I played out the same mistake again with MDT. Keep up great blog,

LB

Jamie said...

Thanks LB,
Acknowledging the error is the biggest step towards correcting it.

Good Trading!

Yaser Anwar said...

Jamie,

I wish you were in toronto and not in montreal! I could have paid to be your apprentice.

Jamie said...

Yaser,
No doubt, we'd make a great team.