Stock Trade Example
Example Trade From Beginning To End
The following is a stock trade example using the Traders Action Zone strategy from start to finish. I chose to show you this trade because there are a few variables that I didn’t mention on the other pages with regard to stops and market timing.
Kick back, relax, fire up nice premium cigar and let’s go through a complete swing trade from beginning to end…
First, let’s set the stage for this stock trade.
The stock market has been selling off violently in the past couple of days and I am very excited. Why would I be excited? Well, because I want as many sellers out of the market as possible before I initiate a stock trade on the long side!
We really have two market timing techniques. We have our standard market timing strategy and our VIX market timing strategy. On this day I look at the S&P and the VIX and this is what I see:
Looking at the S&P, we see that the 10 SMA is below the 30 EMA, so according to our market timing rules we should be trading stocks on the short side, right? Not so fast!
Now, look at the VIX. This is telling us that we should be focusing on the long side. The market has sold off so hard and fast the past few days that we have reached and extreme. So, what do we do?
Ignore the regular market timing strategy and look for a stock trade according to the extreme conditions of the VIX.
In this case, we will be looking for a stock trade on the long side, since the market has reached an extreme, and is likely to reverse.
All of my trades are taken near the end of the day, right around 2:30 to 3:30 EST. So, on this day I can see that S&P 500 is going to close near the bottom of its range (see chart above). So what I want to do is find a stock to trade that is showing relative strength. That is, I am looking for a stock to trade that is up for the day or that is going to close near the top of its range, proving to me that it is a strong stock.
What if the market continues to go down? No worries!! I am looking for a stock that is stronger than the market.
Now we run our scans and look for a stock that has pulled back into the TAZ, and is showing relative strength. I just happen to stumble upon ARI…
Nice looking chart! You got a cup and handle pattern with a nice low volume pullback to minor support into the TAZ. Also, look at the bottoming tails (hammers) over the last few days. The buyers are getting stronger because they are able to close this stock in the upper part of the daily range. And look at today’s price action. This stock is going to close near the high of its intraday range. The S&P 500 is going to close near the low of its intraday range. What does that mean?
It means that this stock has relative strength. It is stronger than the market itself.
We decide that this is a good potential trade. First we have to check the news to see if they are planning on coming out with any financial information or news that could affect the stock in the coming days. We find out that they will be releasing their earnings in a couple of weeks so we will have to be out of the trade by then. Not a problem.
Next, according to our money management rules we nave to decide where our stop is going to be and how many shares to buy. We need to know ahead of time how much money we would lose if we are wrong on this trade. Even great looking setups can turn into losing trades. If that happens, how will this loss affect our capital?
We decide to go long at $39.46 and put our stop under $39.00 – the low of the hammer. We are getting in early in anticipation of a swing point low to develop.
What’s going to happen? Will this be a winning trade or a losing trade? Will the market reverse?
Go to page two of this example trade...
