How I Got the Best from $BABA (Guest Post)

Photo credit: Jeremy Schultz

 

 

 

 

 

 

 

 

 

As a Pro student of New Trader 101, and dedicated weekly participant in the live forums that I host, Fred has picked up some tips and tricks that led him to this (if I do say so myself) great trade.

1. On May 7th, $BABA broke out above its 50 day moving average, as well as it’s 5 day exponential moving average, indicating momentum.

2. I noted its low and high of day price of $84.91 and $89.29; neither were broken. I placed it on my watch list, and also noted the RSI, MACD and Stochastics. RSI was in the high 50’s – low 60’s area, so there was still room to run. Stochastics were not overbought, and the MACD had just crossed over.

3. On May 13th, $BABA made its 1st attempt trying to break out of its 3 day consolidation. I went long in the morning with May 22 weekly $92 strike call options. I figured if it broke out, $BABA should move at least 5-7%. My position was sized at .70% of my total trading capital. My stop loss was 100% loss. Due to the nature and volatility of options, I sized my position based on worse case scenario. If the trade did not materialize, only .70% of my capital was at risk.

4. Over the next 2 days, $BABA did not break out, but it did continue to post higher lows.

5. On May 18th, negative news came out regarding $BABA. This caused the stock to gap down, but since I use the end of day price as my stop, I wasn’t stopped out as the price recovered by end of day and maintained its 5 day ema. To me, this was a bullish signal as the price gapped down but maintained support. Since I had been watching the stock since its IPO, I knew this was not $BABA’s typical price action.

6. On May 21st, $BABA finally did its gap and go, climbing as high as $94.77. When the momentum is there you need to take your gains, so I sold my options when they were up 900-950%.

I  look forward to many more trades like this $BABA trade.
This was a trade brought to you by Fred @NinjaNinja118 my top trading student.
How I Got the Best from $BABA (Guest Post)
How I Got the Best from $BABA (Guest Post)

By Steve Burns

After a lifelong fascination with financial markets, Steve began investing in 1993 and trading his accounts in 1995. It was love at first trade. After more than 30 successful years in the markets, Steve now dedicates his time to helping traders improve their psychology and profitability. New Trader U offers an extensive blog resource with more than 4,000 original articles, online courses, and best-selling books covering various topics.