Description

My basic trading philosophy can be summed up by one simple quote:

"Trade the ticker, not the company" - Nate Michaud


Tuesday, April 22, 2014

Trade Recap: GNKOQ Afternoon Breakout

Afternoon breakouts are one of my favorite long setups, and today GNKOQ gave us a perfect example of one. GNKOQ was trading on the OTC exchange for the first time ever, as it had finally delisted after its bankruptcy.


GNKOQ opened with a strong morning spike, then spent much of the day consolidating. I included the chart above because I believe it is important for people to get an idea of what the chart looks like BEFORE the move happens. I believe it was around midday that I really started watching GNKOQ, because I thought that after a lengthy period of consolidation, the stock could spike nicely if it broke out past its morning high. I prefer breakouts in the afternoon, so I was in no rush for GNKOQ to make its move. Finally, about 20 minutes before close, it made the move I was looking for.


GNKOQ perked up around 3:40, breaking past the morning high of $1.78. Unfortunately, I had my eye on something else at the time and was a bit slow to act, missing the initial break. This is where a lot of traders will get frustrated with trading OTC stocks. Even if you're quick with your buy order, you will find, in most cases, that it is tough to get an execution into strength. Just because I missed the breakout move didn't mean that the play was over, though. 


I am including the zoomed-in chart above because I want you all to notice something. After GNKOQ broke $1.78, it quickly spiked to $1.84. However, GNKOQ then ran into a bit of trouble and had a pullback to $1.80. Some traders would get spooked in this situation and sell because the stock started to dip. However, I take the opposite approach. I believe pullbacks and consolidation are healthy. If I would have been willing to buy the stock at $1.80 on the way up, why wouldn't I be willing to buy it at $1.80 here on the pullback just a few minutes later? It is this first pullback after a breakout where I find myself buying time and time again, especially in afternoon situations. In this case, I wound up buying 10,000 shares of GNKOQ at $1.80. Had the stock dipped further, I would have added to my position. After a long day of consolidation, my risk level was $1.70. 


GNKOQ wound up having a fantastic breakout move, pushing all the way up to $1.96 before pulling back slightly into the close. I sold about 3000 of my shares at $1.93, and I'm taking the rest overnight, looking for a morning gap-up and spike. In the morning, I will either sell my shares into a spike or if the stock looks like it will go g/r. 

So here are a few key things to take away from this post:

1. I prefer afternoon breakouts and usually wait for the breakout to happen before buying.
2. I don't chase spikes if I miss my fill; I wait for pullbacks. 
3. If a move exceeds my expectations, I will usually lock in some profits.

19 comments:

  1. Awesome Tim..I was looking at this one on and off over the course of the day but got held up this afternoon nd missed it.. Pretty pissed but others will come. Congrats though....love the blog.. Thanks

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  2. The fair value here is $0.67-$0.81 per share.

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  3. Is this a bad idea to buy into the morning spike?

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  4. thanks for sharing tim. plenty to learn from a successful trader's thought process and methods.

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  5. Thanks for the post Tim.
    I have 2 quick questions.
    1. How did you find GNKOQ? What scanning metrics did you apply? Biggest advancers, highest volume...etc. I use www.otcmarkets.com and normally look at the closing summary from the day before
    2. The reason you assumed the stock is likely to break out at the end of the day rather than break down is because stocks don't normally break down intraday if they have gained 20% at the open, correct?

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  6. thank you for the blog, great read.

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  7. is this pattern common, where the price will drop slightly in the midst of a break-out and then people will buy at the price once its dropped slightly??

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  8. Hi great post. You said it would be hard to get filled on the breakout.
    I never traded otc before, lets say my broker has NITE route and NITE is on the best offer during the breaking, if i placed a market buy would i get instant execution like on normal stocks?

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  9. Thanks so much for sharing this with us Tim. So educational. You'd make a great mentor. I find your insights absolutely invaluable.

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  10. Do you set any alerts during the day, or do you monitor any breakouts yourself?

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  11. hey Tim,

    a read your blog and i noticed that your PTOG trade from the 19/20.02.2014 is not on the list of trades on profit.ly. how can that be? are you adding only preselected trades to profit.ly?

    sorry for spamming offtopic stuff

    best whishes

    simon

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    1. Hey Simon,

      I made the trade in my Speedtrader account, which hasn't been able to import to profitly since the clearing firm change. As soon as that issue is resolved I will upload!

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  12. Hi Tim,

    When GNKOQ had its first pullback to 1.80 after the breakout, how did you know that was the lowest price in that pullback and was not going lower? Lvl 2?

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  13. Tim. Thanks for the post. The next morning it gapped down defying the logic. When did u sell ur remaining positions.

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  14. hey tim,

    same questions as someone above, 1) how did you find this stock and 2) what is the actual reasoning for preferring afternoon breakouts?

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  15. Follow up:

    GNKOQ failed to gap up, and had a quick morning panic down to the 1.80 area. I was barely able to see any of my position at the open, but rather than chase the panic down I decided to wait for a bounce to sell into. The breakout area of 1.78 acted as support as expected, and I sold my position into the initial bounce at 1.87 for a small profit. I decided to take off the trade because I did not want to gamble on whether the stock would fight back green or not

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  16. This comment has been removed by the author.

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  17. Nice post thanks. But what happened on 4/24 with VAPE?

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  18. Hi Tim,

    Do you use the afternoon break for breakdown too ? or only for breakout ?
    I ask because for example, I have seen a great pattern afternoon breakdown on CLRX

    Thanks for your answer

    Sim

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