As noted in Wednesday's pre-market post, Visa's IPO was the largest ever, and based on MA's success since its IPO, this stock was worth watching. Yesterday's open was promising and I set an alert just below the base at $60.00. Price quickly rallied into the base and I waited to see if it would consolidate in a narrow range for easy entry. That's exactly what happened and the setup was picture perfect as you can see on both the 5 and 15 min. timeframes. Don't buy after price rallies a great distance to reach the base. Price invariably will consolidate the at the base, either before or after the BO. Give it time to set up a low risk entry, otherwise if you jump in too soon, you'll get stopped out or start doubting yourself.I placed Fib. extension from the previous day's late day swing low to the base. My target was 100% extension, at which point a booked a partial profit. This level, as it turned out, also equated to our signature BO target of 3 WRBs.
The 4th bar was WR as well and then suddenly it retraced quickly and I was stopped out on the balance. After the sharp retracement, V started printing lower highs and higher lows and eventually carved out another tradable base.
As you can see from the 1 minute timeframe below, $65.00 proved to be formidable resistance and price retraced sharply after the third attempt failed. That marks the pivot point. I'm adding V to my WL and I suspect that $65.00 will be taken out soon.
The key takeaway from the 1 minute chart, is that a strong stock will pull back to the 20 EMA and bounce, and then it will often find support at 50 SMA and bounce. But when both of those fail to hold, it's a fast move lower. If you want to get back in after that, wait for a higher low, or a base to form.
11 comments:
Nice Jamie! That is also what happened with my GE trade yesterday; it rallied to a key area, consolidated, and then broke out. This is a clear lesson about how price movement reacts to key level areas.
Thanks.
anarco
I am amazed on how much I can learn just by reading your blog everyday.
On your charts do you use
Pink - 5 EMA
Blue - 20 EMA
Green - 50 [S]MA
Correct?
What kind of stop did you use for the short on the 1min chart? It looks like you would have been stopped out if you were to trail your stop on each WRB red bar.
Nice trade!
Do you generally trade off the 15 or 5 minute chart?
You mentioned you should wait till the stock consolidates before trying to catch the break. Does that mean you would not want to enter if say the 4th 15 min bar was a WR green bar? What if blows by the resistance level without consolidating? Would you not enter the trade then?
Keep up the good work.
Thanks Anarco and congrats on the GE trade.
Thanks Anon,
That is correct re: 5, 20 EMA and 50 SMA.
Sorry about the confusion on the red arrow. That is when I exited my second long. I did not short and prefer not to short such a strong stock. I sit on the sidelines and wait for the next long opp.
Thanks Anon,
I have both the 5 and 15 min. charts on my screen simultaneously. I prefer to set my stops and manage the trade from the 15 min. timeframe to give the stock some breathing room. However, the 5 and 1 minute timeframes give a better sense of what is going on. What I mean by that is how orderly the trade is setting up. But if I just focus on the 5 and 1 min. I'll miss the forest for the trees.
If 4/15 broke through without pausing at the base, I would wait for a retest of the base or wait until it pauses to consolidate. This sometimes happens on a short squeeze. I don't want to enter on a wide range bar because the stop is too wide and limits the number of shares I can buy to respect my risk:reward rules.
If price blows by the base without pausing, I don't take the trade. It happens sometimes and it is painful to watch, but not worth breaking my trading rules.
I am learning and observing this principle of "price testing and pausing at key levels." So in the case of my GE trade on Thursday, would you have taken the trade as soon as price broke the 38% fib ext? I certainly decided to wait for a test from above, but do you consider that necessary in that case?
Thanks in advance!
anarco
Anarco,
I see an ascending triangle. The base is $37.20 and the low at the widest part of the triangle is $36.40. On a measured move basis, the expectation is $0.80. The risk if you entered on the BO is approx. 15 cents which gives a good risk:reward. The triangle pattern is orderly through a series of higher lows and no reason to think the pattern will fail, so in this particular case, I would have entered on the break. I notice that often times when the pattern takes a very long time to develop, the BO is vertical. That certainly didn't happen here as the target was not achieved and the wave pattern continued after the break.
The risk on your trade is much less than on the BO entry, but there is not always a guarantee of a retest.
I don't like to take the first BO attempt after price has moved from far below to reach the base, but in the case of GE, the wave contraction moving into the BO allowed for a manageable level of risk.
Thank you for the detailed analysis; it helps me a lot!
anarco
You mentioned earlier you will wait for retest of the base. How do you confirm that it is a retest? A close above the prior bar that touched the base on retest?
Anon,
Yes, that's a good way. Also, look for reversal bars like hammers. And, look for less volume on the pullback to the base.
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