Why Intermediate-Term Traders Should Learn A Few Daytrading Techniques
When a stock gaps up out of a base, it can
sometimes lead to a difficult decision for intermediate-term traders. Do you
take the trade since the stock is exhibiting strength, or do you let it pass,
since getting a good fill near the pivot point is no longer possible?Â
Gen-Probe Inc.*
(
GPRO |
Quote |
Chart |
News |
PowerRating) gapped out of
its base today and left traders with that very dilemma.
I never buy on the open in such
cases, since I feel there is too much risk involved should the gap decide to
fill quickly. Seeing how the stock finishes the day and buying near the close
if it acts well is a possibility. This is not ideal, though, since a strong
finish will mean that you are even more extended from the pivot point, and a
reasonable stop level may be too far away. What I normally like to do is look
for intraday patterns that will allow me to tighten my stops and control my risk
a little better. The chart below is a 5-minute chart of today’s action.
 After the initial selloff and
recovery, GPRO consolidated near its highs starting around 11:00 AM ET. It then
made two feeble attempts to break the morning range. Either one of these could
have provided entry triggers. A stop could have been placed around $29.80, which
would have been near the low of the consolidation. Both of these attempts came
around the lunch hour, which is a notoriously bad time for daytrading. The stock
then formed a Slim Jim from about 12:15 PM to 2:15 PM between $30.42 and
$30.10. The breakout of this Slim Jim at about 2:15 PM turned out to be the real
deal, and would have provided another chance to enter the position. In this
case, the stop could have been set a little below the $30.10 level.
In a situation like this, when you are using an
intraday pattern to enter a potential intermediate-term trade, I normally feel
it is best to take some profits intraday as well. This will help you to lower
your average cost on the position in case you want to use a larger,
intermediate-term stop going forward.
In order to use techniques like this one, intermediate term traders will need to
understand some daytrading techniques. As always, I’d encourage all of you to
take advantage of some of the vast daytrading resources available on this site.
One last thing to note about GPRO is its action yesterday.
As you can see, going into its
earnings report it sold off very hard the last few minutes of the day. More
often than not, when you see this type of action, the earnings report will be
disappointing and the stock will move even lower the next day. In cases where
the report is good (like this one), you’ll many times find that the gap is more
extreme than you might otherwise see. Some people with a lot of money bet wrong
late yesterday afternoon, and they were forced to really pony up if they wanted
back in to the stock.
From a market standpoint, things still look good to me. (How’s that for an
abbreviated analysis?)
Best of luck with your trading,
Rob Hanna
P.S. Anyone who didn’t read
Dave Landry’s column Monday night should do so. The example he uses of
capturing an intermediate term move with swing trade risk is excellent.
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*For
purposes of full disclosure, my firm is currently active in this stock.