Monday, November 01, 2010

Ambush - Capitulation - Reversal: Cognizant Technology Solutions Corp. (Public, NASDAQ:CTSH)

CTSH was an earnings gap which was quickly faded. Price reversed and made a decisive move back to the ambush zone and stalled. I shorted CTSH as depicted on the chart above. Normally, on an ambush setup, I would target the 27% Fib. ext. and then the 62% level. But CTSH was a rip, so I decided to let the 2nd half go. It capitulated on a volume spike at $62.00 (daily support).

Ambush trades work best when the retracement into the ambush zone is decisive, but on lower volume than the preceding trend move. I look for smaller candles on the retracement than the preceding trend move to confirm it's not a trend change and a waste of time. CTSH met all of the ambush trade criteria perfectly and the result was awesome.

Capitulation signals the end of the move and can be traded for a partial retracement of the preceding move. CTSH started off slow, but eventually formed a cup & handle to which I doubled my size. As we can see from the chart below, the retracement was 62% of the entire day's range. Sweet!

I tried to do an ambush trade with AAPL, but the result was far from perfect. This brings home the point that we need a decisive move into the ambush zone in order to anticipate a really successful outcome. The only part of the AAPL move that was decisive was from $304.00 to $302.50. Anticipating this, I took a partial at $304.00. The balance of the trade was stopped out at $303.50.

It's easier for price to move through a non-congested area and that's why the criteria calls for a decisive move back to the ambush zone.


Day Tradr said...

Great trades in CTSH Jamie. Congrats!

Nice explanation of ambush setup with the 2 examples.

Ken said...

Ditto Day Tradr's comments!

I don't think there is a single better way to learn to/get better at trading then studying your own and others trades. Thanks for sharing!

Jamie said...

Thanks guys,

Ambush trades work well in this type of range bound market.