Here’s A Way To Define Perceived Risk
Sometimes when the market is on a
“quest” in search of higher ground, the daytrader who typically concentrates
on trade setups off the 5-minute chart might consider taking a “leap of faith”
on a bullish gap higher, based on the daily chart readings. When properly
executed, what might initially seem like a late entry, is actually an early
entry in the bigger time frame, and can still be a valid approach for aggressive daytraders. If one were to concentrate solely on the pattern of the
5-minute chart, the bigger picture might be lost, and potentially, a very good
trade in the process as we were too focused on the ‘”trees, and not the forest.”
This is not to say that one should go out and blindly buy a nice-looking gap
higher. As always, being able to accurately assess the risk-to-reward potential
is paramount before a decision to put on the trade is actually triggered.
My own personal preference for making a
preliminary trade decision in this type of situation is how much the stock has
gapped above our ideal entry point. For me, this figure is less than or equal to
4%. Then, if the stock meets that criterion, my entries demand that
there be a maximum risk of .35, barring any intraday gaps against the position.
What I am attempting to do is weigh the daily chart more heavily than the
intraday, but still use the smaller time frame for execution and risk purposes.
With a stock that is just coming out of a technical breakout on the daily, quite
often it happens in the opening minutes of trade when there won’t be a several
bar consolidation or pullback before the daily technicals take command of the
stock, and thrust it higher. In this scenario, if such a trade exists, I will
use the 5-minute to search for risk pivots and tightness of trade, so I can
define my risk parameters to no more than .35, while gaining entry without the
standard 5-minute chart pattern setup.
In the TM
chat room I put up an early post on Quest Diagnostics
(
DGX |
Quote |
Chart |
News |
PowerRating). Looking
at the two charts below that show both time frames, you can possibly see why I
was emphasizing the daily chart, but trying to gain entry without sacrificing my
standard money management benchmarks.
Quite often these situations also provide further
entries “up the road”….
11:12:58
Intraday
Setup Alert
From the Nightly Daytraders
Report, Quest Diagnostics (DGX),
mentioned favorably in the TM chat this morning, looks to resuming its trend
after a pullback from highs. The stock broke through daily chart resistance
earlier today, and is now up 1.86 at 65.22.
So next time that you’re excited by the daily
prospects of a chart, go on an intraday “quest” to find the proper entry for a
trade that might just produce outsized returns in the bigger picture.