October 1, 2014

Trade Recap - RADA

Here was the daily chart for RADA on September 29th:

RADA had huge range and volume that day and this was the first decent green candle after a huge sell-off from the $6s. This is one of my preferred setups on a daily chart--a beat chart (check out my trading rules here). So I pulled up the intraday chart and noticed RADA had been selling off since its failure to break above $4 around noon.

Here was my thought process:

  1. Great daily chart--i.e., beat chart with first good green candle day
  2. Nice consolidation on the daily chart too
  3. History of spiking, going from ~$1.50 to ~$6.30 in just a few days
  4. Any shorts that haven't covered will join momo traders in buying the stock into the close
  5. Time to draw trendlines and look for a good entry with 1:2 or 1:3 risk to reward
Here is what my chart looked like:

As you can see, the stock was still in a downtrend; but, I felt that major support around $3.32 would be an ideal entry point for a push into the close. So I set my entry at $3.35, just above support and put my stop at $3.24, just below the next support level--about an 11 cent risk. I put my price targets at two previous resistance points: $3.54 for half and $3.74 for the rest--for about a 20 and 40 cent reward to an 11 cent risk.

I did get filled at $3.35, and as soon as I did, I realized that the stock was still in a downtrend. I realized I bought near support sure, but I'm trying not to anticipate moves before they happen--I'm trying to let the stock tell me it's time to buy. A stock tells me it's time to buy by up-trending. Thankfully, RADA worked out as planned though, and my nearby stop was never hit.

RADA would pop into the close as predicted and I took profits at $3.54 as planned. However, as the price action started picking up, and the time and sales tape started flowing like mad, I got a heavy dose of adrenaline and a dose of fear--fear that $3.74 was too greedy of a price target and that I needed to lock in some more cash immediately.

So I adjusted my PT to $3.64 and it was hit within seconds. As you can see from the next image, RADA would hit my original price target. :) I'm smiling because my hypothesis was ridiculously right, and that feels oh so good to a newb trader! I know my execution was wrong, but that I can and will improve upon in the future. But profits are profits baby!

To recap, here are my strengths and weaknesses for this RADA trade:

  1. Daily chart was perfect, and great volume
  2. Set a good stop and two price targets--bat for singles!
  3. Bought a washout at support--although I should have waited for RADA to uptrend first
  1. Bought in a downtrend--need to wait for a stock to tell me to buy, a.k.a. up-trending
  2. Adjusted my 2nd price target because of fear and adrenaline--need to recognize this happening in real-time next time and make sure that I'm adjusting price targets because of the chart, and not because of my emotions.

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