Context is king. Being aware of the forest when looking at a tree is the difference between making $1/share on a trade or making $9/share.
I’m writing about this in hopes that it will help me recognize these spots more clearly in the future. The two spots that I encountered recently are a long trade in $TSLA and a short trade in $TWTR.
Let’s begin with the best example. $TSLA on the daily looking wound up and then given this gift on a 5/10 minute time frame intraday. It’s a bullish pattern within a bullish pattern.
There is the fear of a fake breakout, and most times I have seen this break there comes a retest of the break. This time the move was all sideways accumulation. There’s no way of knowing that there was going to a breakout on the daily that afternoon but you have to give it the chance.
$TWTR. It’s the holidays and driving back to Atlanta I saw the massive volume day in the stock on Thurs and thought there might be a significant mean reversion trade coming.
I had bought some puts but looked forward to being on the desk Friday and catching what might be a piece of an easy move. I did that getting most of my short on the break of $69.
Given the room to run on the downside and the defined risk with the morning consolidation at $70 I got on a sizable position and took about $1 of the move home.. meaning I’m exiting at 68.
TWTR closed below 64 that day. There are a couple of things that stand in the way of me keeping tremendous risk on in this trade – holidays, Friday afternoon (options games/max pain), strong stock with limited history, but to not stay with the trade is unacceptable. To make the most money stay present and 1) leave a runner – 10% of the position or so 2) get back in on the new consolidation break below 67. Now I did that but I chose an arbitrary target thinking of just adding to my PnL. That is thinking in bottom line terms instead of recognizing the possibility that the rush to the exit door wouldn’t come until the close. All I had to do was trail the position mentally. Never a reason to exit the final short trade.