Riding the WAVX

In addition to the futures markets, I follow a number of stocks that catch my attention by being unusually active. Wave Systems (WAVX) first came on my radar screen on July 31st when it exploded higher. I have no idea why it jumped like that, and frankly I don't want to know the reason. The only thing that matters to me is that the stock is active and volatile.

WAVX, through July 31, 30-minute Chart

I wasn't aware of this move while it was under way, I just noticed it when I was reviewing the actively traded stocks at the end of day. I'm not a gunslinger so even if I had seen it going crazy during the day I wouldn't have fooled with it. That middle of the day pause looks like it gave a good spot to get long above, but I wasn't paying attention to WAVX then.

WAVX, through August 1st, 30-minute Chart

The next day was a different story since WAVX got top billing on my "Unusual Suspects" quote sheet. The trend is clearly up so you want to look for spots to get long. Stifle your natural urge to get short. There will come a time to look short, but for the time being it won't pay to fight the trend.

WAVX drew an inside bar between 10 and 10:30 providing a nice spot to get long above. A very tight stop was possible at $2.76 (a penny below the low of the bar you were filled on). A good way to trail the stop as the stock screams higher is to place it a penny beneath each up bar. By using this method the trade would have been stopped out just below $3.80 early in the afternoon.

WAVX, through August 4th, 30-minute Chart

The next day WAVX again drew an inside bar between 10 and 10:30 giving a great bar to execute against. That position was stopped out in the early afternoon at $4.75, a 46 cent gain. Taking another long position above the 2:30 inside bar turned out to be a loser: 9 cents lost. At the time I was thinking about WAVX exclusively from the long side, and didn't even consider the short side.

WAVX, through August 5th, 30-minute Chart

Again on August 5th I was looking at WAVX exclusively from the long side. The trade taken above $5.18 went wrong and resulted in a 17 cent loss. It's fair to ask what kind of idiot would get long above a clear "test of top." The answer is my kind of idiot. In a perfect world I would have gotten short below that inside bar instead of long above it, and caught the exact top, but of course I didn't.

WAVX, through August 6th, 30-minute Chart

Yesterday the intraday trend finally flipped down and I could approach WAVX from the short side. The 10:30 - 11:00 inside bar gave a nice spot to get short beneath. Depending on how aggressively you trailed the stop you could have made as little as 4 cents on the trade, or as much as 43 cents if you carried it into the close.

Qcharts Screenshot (click to enlarge)

People have been asking me to post a screenshot of my current Qcharts setup, so here it is. You can download the workspace if you wish.

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