Yesterday in the AM Meeting I mentioned XOM basically as an aside. It had reported earnings and was at the 52 week high in the premarket, so I felt obligated to at least mention that it should be bought above that level. So it ended up consolidating tightly right below the 80 level and I’m sure a bunch of SMB traders bought as the large offer decremented at this level and lifted a whopping one cent!! XOM proceeded to drop 50 cents almost immediately creating a sea of red on our risk monitor.
Later in the day Andy the Intern sent me a gchat to let me know that he got long on the real break that happened right after 12:00PM. He caught the entire up move with a few other traders but most of those who got crushed in the initial fake break never got back in or traded with less size and finished negative in the stock for the day.
Do you think there was a way for those who entered the stock initially to do a better job of limiting their risk?
How could more have participated in the real breakout?
What are some of the ways that traders could have maximized their PnL on the move in the afternoon?
Please share your thoughts with us.
13 Comments on “Don’t Be This Guy”
How do you enter these “breakouts” in a safer way? A lot of times I will jump on the break like you mention and it will do exactly what you said here, drop 50 cents before you can blink. So the next time I wait for it to hold above a level but then I end up chasing too high as it immediately rockets 50 cents. What do you look for to get some confirmation?
Wait to add real size until you’ve had a down close then up close followed by an up open and higher high the next bar. Using the 15m chart this didn’t happen until 80.41 at 2:30. Once that happens though much safer to take a full position vs the break.
I would probably say that during the consolidation right below the first breakout I would have placed a tight hard stop right below the low 79.85 so even if you bot the 80 break and it failed & reversed hard you should be able to take a 20-25c loss (hopefully they’re isn’t too much slippage). Then after XOM dropped 50c and found support around 79.5 you could see that higher low being put in and possibly have seen the asc tri being built. Ideally I would have set a 2nd alert for 79.95’ish and when XOM triggered you could have seen the volume on that spike above 80 giving you conviction that this was the “real deal”. This time I would have given it a really tight stop (probably w/ less size) just below 80 (momo approach) because a second failure w/ a significant loss would be devastating to my emotional capital and may actually trigger a revenge trading approach to get back my money. When XOM slowed at 80.5 I would want to see where the stock found a bid around 40c. During the consolidation I would be looking for confirmation to add or sell and move up my stop to about 80.37 to protect my gains. and when it broke 80.50 on a smaller volume spike would have looked to add thinking that next level may be 81. Then would probably sold out when it came back to 80.5 to lock in gains. There’s a TL sup line that you could have drawn to have gotten back into the stock & catch the last leg. This is all my hindsight analysis and I probably would have traded it differently in reality.
I think the volume came with the real breakout (green high volume bar)
hmmm… breakout plays can be tough for me – can sometimes get a low risk entry on a good pullback, but of course, the strongest moves seem to come from nothing more than shallow rest, in which case, timing and tape reading (and for us ladies, a good solid set of metaphorical you-know-whats) all come in handy. As for the 11:00 fake, what I DO know, is: related or not, I quite happily scored one for the “Don’t-trade-during-conference-calls” policy.
BTW, thanks Mr.S for the posts – an endless resource for me and good supplement to the Foundation course – much appreciated!
Skip the break out and scale into the first afternoon buy setup around reversal time, probably a safer play all-around.
I played this stock as well yesterday. The way I traded it was I only had a small initial position when 80 decremented. 80 Lifted and I paid for the rest of my lot, but I expected a QUICK pop to at least 10c just by the amount of selling there was at that level. I quickly hit the bids when it didn’t do that. I later watched it when it was forming a mini bear flag, but I didn’t play a trade – thankfully. The bear flag turned into a minor consolidation and I started to build a small position around 11:45, about 1/3 a full position. Finally when it reached, broke above, and stayed above the 80 position I added the rest of my position. The trade had 2 nice flags after the break out where I also took on more size.
I think that it depends of the stock and your mental attitude.
– XOM is not a stock were you can trade clean setups (or at least this is what I think) and you must expect shake-ups before it goes;
– and speaking of mental condition: if you got burned numerous time before by the hft’s in what you thought is a brakeout, then there are a few chances (as a developing trader offcourse) to step back again into the trade with the same attitude and size.
In conclusion, I think there is no ‘right’ answer for these situations, but they are subject to the individual stock (the way it trades) and the trader experience and emotions (negative/positive emotional baggage resulted by his track record).
Buy the first pullback after a breakout. If that fails, the stock sucks anyways. If it works, you have a good stock to hold for a nice move.
Using a little common sense you have to figure this was going to be a crowded trade. I watched this all happen from the sidelines with a little chuckle, and I heard a few pounded desks around me. If you just can’t help yourself when you see this play and you hit the decrementing offer, you immediately hit the bids if you dont see 80.10-80.15 right away. The only way I like this play is if the stock consolidated away from the offer and when it starts to approach the offer the volume is already picking up and then it immediately starts decrementing in large chunks as soon as its touches the offer.
I would have waited for a lift above 80 and hold before I entered. I would have put a 1/3 lot on and then added if strength continued. I also would keep a 1/3 lot bid about $.40 below the 80 level because I have seen to many times a stock like this whip and recover.
I think the people who bought the first break did the right thing – it just didn’t work this time.
Ha yeah I did that exact trade you described, covered around .66 on the daytrader dump when the breakout failed. In hindsight I still feel like that was a great setup, but where I went wrong was not really having a good out. But for the most part breakouts like this with earnings/volume/52wk highs/break big level have been working in this market. Just catch this on alot more stocks and anyone should be positive with this trade overall.