Akamai Technologies, 30-minute Chart

Questions:

1) Why would you be paying attention to this stock on Thursday, October 30?

2) Is the trend up or down? Would you be looking to get long or short this stock?

3) Where would you get long/short this stock on Thursday, October 30?

4) Where would you put the initial protective stop?

5) When would you stop trading for the day?

6) Where would you exit the position?

Answers:

1) Because it was unusually active, and very volatile.

2) Up. You’d be looking long.

3) Long at 7.76 on a buy stop above the 11:00 inside bar.

4) Initial Protective Stop: 7.58. (max. 2.32%)

5) Right after you enter the position or lunchtime, whichever comes first.

6) End of day. Could sell half, carry half, or just close it all at once.

AKAM was extremely active doing about 38,000 trades on the day, so you couldn’t miss it. The stock closed at $8.03 giving a gain of about 3.5% from entry. The initial risk of 2.32% would give a fairly unsatisfactory reward to risk ratio of 1.5 : 1, but AKAM was flying so fast it would have been prudent to move the initial stop up to $7.69 very quickly, which would have resulted in a much sweeter ratio (4:1).

Remember that once you know what to watch for, the real trick is learning good money management, and most people get bogged down looking for some “system” when they should really be thinking about how to manage risk.

Screen capture of my intraday Watch List:

EarthLink, 30-minute Chart

Questions:

1) Why would you be paying attention to this stock on Tuesday, October 21?

2) Is the trend up or down? Would you be looking to get long or short this stock?

3) Where would you get long/short this stock on Tuesday, October 21?

4) Where would you put the initial protective stop?

5) When would you stop trading for the day?

6) Where would you exit the position?

Answers:

1) Because it was unusually active, and very volatile.

2) Up. You’d be looking long.

3) Long at 8.18 on a buy stop above the 11:30 inside bar.

4) Initial Protective Stop: 8.07. (max. 1.34%)

5) Right after you enter the position or lunchtime, whichever comes first.

6) End of day. Could sell half, carry half, or just close it all at once.

The risk in the ELNK trade was very modest at only 1.34% — skittish traders could have chosen to move their protective stop to breakeven almost immediately. The stock closed at $8.54 representing a gain of 4.4% from entry, with a better than 3:1 reward to risk ratio.

Folks who blindly bought on the release of ELNK’s Q3 numbers had a great day, but the question is where did they place their initial protective stop? What if the stock reversed moments after they put the trade on? I like to quantify risk and set chart-based stops… I can’t just “wing it,” and I suspect that if I tried to wing it, the first thing that would take flight would be my trading capital, straight into a nose dive.

Screen capture of my intraday Watch List:

Sirius Satellite Radio, 30-minute Chart

Questions:

1) Why would you be paying attention to this stock on Tuesday, October 14?

2) Is the trend up or down? Would you be looking to get long or short this stock?

3) Where would you get long/short this stock on Tuesday, October 14?

4) Where would you put the initial protective stop?

5) When would you stop trading for the day

6) Where would you exit the position?

Answers:

1) Because it was unusually active, and very volatile.

2) Up. You’d be looking long.

3) Long at 2.39 on a buy stop above the 10:30 inside bar.

4) Initial Protective Stop: 2.33. (max. 2.51%)

5) Right after you enter the position or lunchtime, whichever comes first.

6) Stopped out on 4:00 bar.

Even though the initial risk was only 2.51% it would be sensible to move your stop up to $2.35 after being filled, bringing your risk down to 1.67%. SIRI has jumped about 25% in the last several days so it was pretty stretched.

The stock went more or less nowhere all day and I expected to be able to exit at least 3 or 4 cents above my entry at end of day, but got flushed out as the stock was driven down in the last 20 minutes of the day. It’s better to be stopped out than trapped long!

You can see how a “shooting star” forms on the daily charts by looking at the SIRI chart’s intraday action. Obviously I would be looking at SIRI from the short side once trend flips down and begin to target the 2.10 - 2.20 level.

Screen captures of my intraday Watch Lists: