Mailbag
The first trade in JWN was submitted by a reader. The entry and partial are his and he asks how he could better manage the trade. He was targeting a 50% Fib. extension.
The first point is that JWM is a regular gap with an expected target of 38% from the previous day high to the ORL (
Trader-X). That target as we can see from the chart, was achieved within a tiny margin of error. Always sell/cover into strength, so plan to exit at least a partial as price approaches the target. After that don't allow price to retrace more than 38%. That is a normal retracement, and if it takes place on declining volume, there's a good chance that the trade can continue to move in our direction. I measure 38% including the trigger bar and estimate that $28.10 plus wiggle of 5 cents was a good place to set a stop.
The story is a bad retail sales report, but nothing over the top. The main observation I have is that the entry takes place after 3 WRBs so the main thrust is behind us.
If we look at the 3 minute time frame, we see that after the first two 15 min. bars, it carved out a 3 PP base at the ORL, with three consecutive lower highs (ABC). That setup is a relatively low risk scalp. Take a partial after 3 WRBs.
If you use multiple time frames, watch for candles with upper wicks on the lower time frame as potential areas of resistance, if they don't hold, take some money off.
The next trade was my gapper trade today. FCSX was an earnings miss with a really wide gap, trading in the daily spot (all time lows) with no support. If a stock gaps too wide don't use the regular Fib. extensions because they don't work.
Here I'm trading a pattern - bearish flag, so my extension is from the top of the pattern to the base. The normal expectation for patterns is 100%. But this is a $17.00 stock, so I have to be realistic in my expectations. Also there's a caveat here because the flag breaks when the down sloping 5 period EMA is still a good distance above price. So I took a partial after almost 1 pt. to mitigate any potential reversal. FCSX didn't reach the full extension. But I'm keeping this one and VMW from the other day, on the WL for potential future weakness.
