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.