Was It Worth Trading? | SMB Training

After the market closed yesterday P released their earnings. It was immediately sold aggressively down to 12.50. A controlled bear flag developed with the next major support about 2.5 points lower. I noticed on the StockTwits stream @ldrogen say the conference call was not going well at all. From the back of my mind emerged my negative bias having watched its bearish price action in the days following its IPO last June. My “trading brain” was quickly calculating how many traders might now be trapped long from much higher prices after its recent runup.

By reviewing the long term chart you can see that almost every trader who bought $P in the past two months was in from a price above 12. How could the market most efficiently punish those longs? The next major support area was around 10 where it had been accumulated prior to its recent run up. I considered dropping the project I was working on and firing up the trading platform for some after hours trading. I opted instead to do the obligatory shout out to our head trader “Hey, you looking at P?” I said hoping he would start trading it and I could return to my project. I did not initiate a trade.

By the time our AM Meeting finished this morning P had already bottomed at 10.35 and had begun to bounce. I remarked during the meeting that the easy money on the short side had already occurred and I tweeted that as well. I thought if it popped to 11.50ish on the Open there might be a safe short entry but otherwise was only looking for quick scalp type trades.

In the first 15 minutes P had about a 75 cent range so there was some money to be made. My first two trades in P were longs and both were profitable. After 9:45 the range got tighter and tighter and it was clearly being supported at 10.80. I put on a long position with a stop below 10.75 and left the trading desk. It had a trading range of 30 cents for the rest of the day and I was eventually stopped out.

The question I sit here asking myself now is whether I should have bothered trading P at all during the Open. There was a great short trade in the after hours yesterday. There was a pretty good continuation play in today’s pre-market with a safe entry point. By the time the bell had rung at 9:30 P had already bottomed at 10.35 but hadn’t really bounced enough for a bigger picture entry on the short side to make sense to me.

I have been considering very strongly during the past few months not trading stocks that have already run up or down in the pre-market to major support/resistance areas. At least not in the direction of the trend. It doesn’t suit me to catch the last 10% of a trend. I would rather be in for the “meat” of the move or get involved once the trend has reversed itself. That is why I put on a long position with a tight stop before leaving the desk.