Wednesday, October 18, 2006

Trade of the Day - Yahoo! Inc. (Public, NASDAQ:YHOO)

YHOO gapped up on the open but quickly reversed course as sellers took over on heavy volume following last night's dismal earnings report. I took a short position on a break of the OR low and covered as soon as price reached $23.00.

I noticed that X was testing its trendline just as I was about to go for lunch, so I stuck around and took a short position. My preliminary target was yesterday's low, followed by a gap fill to Friday's close (both of these targets are mapped out by the blue lines). I covered 50% of my position about 10 cents below my first target and held the balance hoping to reach my second target. I covered the balance of my position when it appeared that X might rally into the close.

2 comments:

Dave said...

Nice trades, Jamie. On YHOO, where do you decide to set your stop on a trade like that?

Jamie said...

Hey Dave,

Thanks, I don't set a hard stop on this type of setup because the entry is mainly derived through intuition. However, I would take a loss if price closed above the 50 MA and didn't immediately come back under. Once the trade gets underway, I trail a stop just above the 10 period MA until I reach my preliminary target and book some profit. After that, I usually loosen the stop on the balance of the trade to give the stock room to consolidate. In the case of YHOO that situation didn't arise because it never breached the 10 period MA.