We usually don’t trade on Fry-Days, specifically because price action tends to be more like Thursday. On Fry-Days, we typically see a move in the morning, then sideways action. Today is quad-witch, so this is the expiration date that includes stock index futures, stock index options, stock options and single stock futures. Price action will likely be volatile.
DRYS Trade and IBD50 Similarities
Yesterday, a few of us traded DRYS, after an alert by Jenn in the trading room. She noted DRYS was in play. We gave the chart a look-see.
We use the same strategy to trade risky stocks, as we do with IBD50 candidates. We always ask, “where is price relative to the 9/20ema?” Then we watch for support or resistance along this line.
With DRYS, the “slope in the emas” sloped bullish. SOTEMA said, look for support at the rising 9ema. Once we noted a consolidation area (important) we could then establish our support, stop and targets. I prefer a long consolidation period, as noted prior to the red arrow (trigger zone).
The setup came after the long consolidation. This, like any other stock, gives us a view into supply and demand. As prices became tighter, supply began to dry up. As price action continued to consolidate, I was setting up my trade, with stops (-0.25) inside the pattern and target (+0.50) from the breakout zone of 1:2 risk to reward. I was willing to lose a maximum 1,250 to make at least 2,500.
Once demand came it, we took our initial position. Immediately, we began trailing our stop. The rest led to a well executed trade. Obviously, with a risky stop like DRYS, we had to pay attention to the trade much more than an IBD50 candidate. The principles for entry and exit are similar. A drop below the 9ema starts the process of positioning for an exit.
This is another view I was monitoring.
Here are the trades.
We have a position in NVDA 100 calls. The stock is higher this morning pre-market. We had high hopes that we might pierce the 100 barrier yesterday.
We considered an entry in AMAT yesterday. We would be looking to swing into next week, provided prices holds above the 9ema and RSI continues to rise. AMAT posted an earnings beat on 11/17/2016.
Charter was mentioned in the Thursday blog post. Warren owns this Broadcasting and Entertainment stock. RSI continues to rise, so if a continuation candle appears it means we could see a follow through day, after the recent consolidation.
Chips and semiconductor stocks have seen a lot of interest the past couple of days. Once NVDA broke out on the upgrade from JPM, the rest started to follow.
The point in the DRYS commentary, isn’t a trade recommendation, rather this should be viewed as a reminder. Get into the habit of always asking yourself, “where is price relative to the 9/20ema,” prior to any trade. Set your stops and calculate your risk/reward. You do this on any trade, if you are consciously using a strategy.
Happy Fry-Day
Vinny
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