I got long NFLX today at 132.55. It had dropped about 10 points from the open to 132.47 and after it made a new intraday low it traded above the previous low. So I stuck in a bid above the original low and knew if my bid got hit I would most likely be stopped out of the trade for a small loss. It was a low probability trade since it was trending lower in virtually every time frame except for the 1 minute. Why would I make a trade where I viewed the probability of making money lower than losing money?
- by every definition NFLX is short term oversold having dropped 60 points in the past 4 trading sessions.
- the failure to hold below the new low an initial sign of a possible bounce
- my risk was small and well defined
- if it bounced up to today’s opening price the risk/reward on the trade was greater than 1:10
- i knew i would be off the desk by 11:00 and therefore would most likely miss the higher probability reversal trade which i have highlighted on the chart below
2 Comments on “A low probability trade”
“by every definition NFLX is short term oversold having dropped 60 points in the past 4 trading sessions.”
Could you maybe elaborate on these “definitions” of oversold. I am trying to improve fading these oversold bounces. From a daily chart it looks like today was capitulation in the explosion of volume. I am just trying to better determine when to switch from momentum mode to oversold (fade) mode.
I tend to do this often. I am limited to only an hour and a half of trading at the open and so I often force a trade when I know my chances aren’t good. For some reason I feel like I can’t leave the desk until I’ve made a trade. I don’t know if this is the case with you. My wife tends to be more patient, I hate her.