Friday, November 24, 2006

Trade of the Day - Rambus Inc. (Public, NASDAQ:RMBS)

My strategy going into this holiday shortened session was a little different than usual. Rather than running a gapper scan at 10:00, I wanted to be in my trade by 10:00. Also, because of the pre-market selloff, I was looking for stocks that would bounce off of support shortly after the opening gap down.

After seeing Tom C's trade of the week on Trader X blog last week, I added RMBS to my short-list of momo stocks with potential for further upside. In the early going this morning, I was tempted to long CAL, but at the last minute decided to go with RMBS because it had a cleaner setup, ie. it gapped down to a well defined support level and shortly after the open, it offered a low risk entry on the 5 minute timeframe.

The wider range view, shows how well defined the support/resistance parameters were going into the trade.

My entry was a break of Wednesday's high. My original stop was just 25 cents. I added to my position after RMBS consolidated the first leg up. This was done on a one minute timeframe where the break was much more obvious than on this 5 minute chart. I then moved my stop up to $22.10 which was the low during consolidation. I exited 50% when last week's resistance was tested and the balance was sold into the close. All in all, I applied low risk dummy trading rules to a 5 minute timeframe in the context of clearly defined support/resistance levels.

If you get a chance, look at the daily timeframe and notice how Wednesday's stick looks like NR7 - range contraction/range expansion.


Anonymous said...

Jamie, I appreciate the detailed description. This type of description, though it is not realtime, feels like it!

It has been pointed out that most beginning traders do not have an opportunity to have an experienced trader over their shoulder while trading, but this fleshing out of a trade from start to finish is almost as effective.

I particularily liked: "All in all, I applied low risk dummy trading rules to a 5 minute timeframe in the context of clearly defined support/resistance levels." Sounds like a nice niche you got there.

TJ said...

Thanks Michelle,

I find your technique of moving down to the one minute timeframe during price consolidations is very useful. I applied it to this trade and it worked very nicely. My only regret is not having posted the one minute chart of that part of the trade in this post. It would have been useful for novice traders to see the volume contraction during consolidation followed by volume expansion when price breaks, "lullipop" if I'm not mistaken.