Let’s not sugar coat it. Trading is hard. Really hard. If it weren’t, every single person would be doing it and we would be multi-billionaires, but as far as I know – this is not the case. Therefore, if it is the truth that trading is truly a difficult business to be in, the number one thing we need to do/know is to have a plan of approach for this chosen business. For me, this is simple and outlined here: My Strategy and Process and here with my set-up: The Coghill Flag.
Today, I purchased $TWTR (Twitter) as per my rules (listed above). I did so because of the rules that I created to keep me on track in terms of developing a successful career. So instead of just reviewing these over-stated rules (I do this often), I going to outline exactly why I like this chart and the targets and my trade-plan.
First, let’s just use a bullet point format to outline some of the reasons why I like this stock for a long trade
- It is not extended, it has essentially done nothing over the course of the past few months
- It was strong all day today (1/8/15)
- The price is within a contraction (as per Bollinger Band analysis)
- It is currently above the 21 exponential moving average
- The risk is clearly definable
- Below today’s lows (37.00), I will sell the stock for a loss as the above premises will no longer be true
So, we have some reasons why I like the stock, now let’s go over what the plan is for the trade.
The stop loss, as stated earlier will be below 37.00 a share, this is the point where the reason I took the trade is no longer true
The target for this trade is not a simple answer. First off, part of my rules is to sell half on the breakout and then sell the other half on continued strength. So, in the case of TWTR – the first sale will be near 40.00 a share (I will sell half). After this I will trail the stock versus the 8 ema or on further strength (3 days outside the upper BB), I will sell the other half. Now, the reason for selecting 40.00 a share for the first sale price is clearly visible on the chart below, it is a level of price memory (meaning, the stock price has reacted – up or down – when it has reached this level before), which has now turned into resistance. However, along with this reason I tend to select round numbers for my stop losses and targets as I ‘feel’ like they provide a more significant level of action + I am really not that smart to call out a random number for a price target down the penny for a target.
So, there you have it. This is the thought process of why I bought TWTR and the plan I will enact as a result of it. Let me know if you have any questions.