There was a lot evidence from CTSH's 15 minute time frame that this stock was going to roll over. A bearish evening star reversal pattern - star is a hanging man. As price moved back into support, it carved out a NRIB NR7 setting up a perfect low risk, dummy entry point. I took a partial as price approached $31.00 and the flat 50 SMA.As you can see from the 3 minute time frame below, I allowed for a 38% retracement. I use a mental stop on the second half and monitor the price/volume action during the retracement. If volume increases on the retracement I will put in a hard stop a few ticks above the retracement level. But as you can see, CTSH wasn't setting up much of a move here. It was just a matter of time before price would roll over once again. That gave me the opportunity to add back the original size for the second leg down.
6 comments:
Beautiful trade Jamie!
Just to add to your great analysis and execution: at the highest point of the evening star, around $32.30, CTSH touched the 20 MA (on the daily chart) and this action is not unusual from stocks that are ready to turn 180 degrees. CTSH has a bearish daily chart at this point and five days ago price moved below the 20, 50, and 100 MA. I am keeping this one on focus for tomorrow since it could be both a continuation trade and B&B at $30.00.
Thank you.
Thanks Anarco,
Good observations. The confluence of the $30 daily PP and the trendline could see a big drop. Would like to see it consolidate some before breaking.
Also check out VMW. Big gap down yesterday = flag pole. Today was IB. A few more inside bars could form a bear flag leading into a perfect storm.
sweet! added back and really squeezed the lemon for max profit.
QQQ,
Sweet indeed. Wish all trades were this predictable :)
Jamie,
Do you use a buy stop order for B&B or do it manually?
There must be a volume surge at the break of the base. How do you know whether there will be a volume surge at the break of the base?
Thanks for the wonderful blog.
Susan
Thanks Susan,
Yes, I use a buy/sell stop order for B&B. There usually is no problem getting a decent fill on liquid stocks with a narrow spread. If the spread is wide, you might want to use a stop limit order in order to avoid slippage or buy/sell when it looks and feels like the base is going to give way. Using the total view level II can help you get a good feel for when a stock is going break.
Volume picks up on the break, but some stocks retest the base after breaking out. Many don't retest so it's best to try to get in on the initial break.
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