Description

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

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


Tuesday, September 30, 2014

Trade Recap: SPEX Afternoon Breakout

For those of you who read my last blog post, you saw that a Nasdaq long setup I used to frequently play was afternoon breakouts. A shift in my focus, as well as a nasty GENE loss (which I fully deserved for breaking rules), kept me from playing these for awhile. To recap, here's the criteria I look for in order to make a play:

  1. WELL above average volume
  2. At least one hour of consolidation
  3. Breakout occurs after 2:30 eastern
  4. No major multiday resistance near the breakout level
Today I was pleased to see a breakout opportunity set up with former runner SPEX. Coming into today, here is what SPEX's daily chart looked like:


You can see that most days trade very little volume, but back in May it had a huge two-day run with MUCH heavier volume. This morning, SPEX quickly had a morning spike to a high of $1.38 on increased volume, then pulled back and consolidated for most of the day:


I saw the chart consolidating and holding, however, I chose not to buy in anticipation of the breakout as trades like that are too much of a gamble for me. I prefer to wait for the breakout to actually occur. According to my rules, I needed the breakout to occur after 2:30 eastern as well. 


At 2:47, I got the breakout I was waiting for. Over the next ten minutes I accumulated 35,000 shares long from a $1.377 average, right around the breakout area. You can see that the breakout didn't hold perfectly, and the stock briefly dipped below $1.38. That didn't bother me. In my experience, this is not at all uncommon, and breakout levels rarely act perfectly as support. I would have become concerned if the stock had dipped more severely, perhaps below $1.30. 

I began selling my shares into the close and continued to sell them after hours. As of writing this, I have about 5700 left long. I think SPEX could very possibly gap up. However, I prefer not to have any overnight risk, especially on the long side, where I'm less comfortable trading. In my opinion afternoon breakouts are a high-odds, low-risk setup, and I will continue to look to trade them in the future.

23 comments:

  1. Great trade recap Tim, I was also intently looking at SPEX right before it broke out but failed to act, still very new to all this. Good to know I was on the right track about the post 2:30 breakout buy thought.

    I sent you an email last night on your Yahoo account, I'm sure you're bombarded with e-mails all the time, if you could answer it great, if not no big deal.

    Thanks.

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  2. im also new and this is slightly puzzling to me. please help. what im understanding is that this wasnt something that you were watching and waiting for like a pump or PR and that (if im correct) you had a scanner and or IU chat member call out (which was most likely found my a scanner). how is it that something so small and unplayed, have enough momentum to also hit that 30 day previous high without something helping it like a pump or PR?

    ps. im pretty sure that bottoming for the past few days created a wonderful support but not completely sure how it helped it go from $0.70 to $1.58. Your input would be GREATLY appreciated.

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    1. Yes I found this stock because my top % gainers scanner found it. Once it was on my scanner, I pulled up the chart and saw the setup forming and then just waited on it the rest of the day. Why it ran in the first place, I really don't know. That doesn't matter to me to be completely honest.

      I can't really advise how to get out even in front of the initial morning spike, that's not where my strength lies. Once the stock is active and moving my scanner finds it, and then I simply watch the chart for setups (long or short) that I am comfortable with. I play the predictable part of the move, then move on

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    2. hmm, im sorry for the ridiculous questions. this just seems a tad bit too easy. i have an eerie feeling that its more complicated than just waiting for the setup and playing it with the strategy you, sykes, and nate have provided. i constantly see opportunities where i can enter and get the trade correct, but i dont because i lack the confidence... plus super small account with leverage. have you ever experienced this? what helped? thanks again for the help!

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    3. Goon Goon - There are some awesome posts for us newbies that answer your questions. FYI, for your question above on lack of confidence (scared), refer to this post - http://tradetheticker.blogspot.com/2014/01/question-how-do-you-deal-with-emotions.html

      I go through Tim's posts every few weeks, every time I learn something new, I am sure you will benefit too!
      Cheers

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  3. Tim thanks for the post! Quick question. Do you ever bend your rules in certain situations? Take $LAKE today (10/1/14), which met all of your criteria EXCEPT it b/o at 215pm EST and surged. I may be splitting hairs but I just was interested in your input. Cheers!

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    1. I have the 2:30 filter just because I find that it increases the odds of the breakout holding. That's not to say earlier breakouts can't work, LAKE certainly surged well. I'd probably just be a little more careful with them

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  4. Great replay! Do you have any warning signs that the trade might not be one you want to take in a trade like this? For example, TKMR today had a very similar setup going into close, but instead it dumped into close.

    Thanks!

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    1. Well TKMR breakout was a bit premature before 2:30, also above the price range I typically look for. However, it did still offer a very nice spike. If you do play these before 2:30, I definitely would pay myself a bit more aggressively into any upside.

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    2. Is there any red flag in a setup like this that would make you say, "nope, not the trade for me"?

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    3. Only one I can think of is a bigtime resistance level within a few percent of the intraday breakout. Or if the breakout occurred on a straight up spike rather than slow, building action

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  5. Thanks for the detailed post! Can you talk more about the initial stops for these type of setups? How much breathing room do you give it initially before you know it's wrong?

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    1. I try to judge based off of prior support levels, as the chart continues to develop and new support levels form my mental stop areas often move. In this example, I would have based my risk off of the 1.25 consolidation level

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  6. Tim, in your reply to SCOTT's question, you said TKMR is above your range, I remember seeing that you do not play sub-penny stocks, but not sure how much is your up limit is.

    Also, in your reply to GOON's question, you wrote that you found SPEX through "TOP GAINER SCANNER" I am wondering if you mean you have used
    STOCKSTOTRADE / EQUITYFEED on their "TOP GAINER" feature?

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  7. 322M - FYI Tim has all of your questions answered in "List of FAQ" section.
    If you are new to this blog, I highly recommend to go through posts, all are GREAT. I am going through his posts 3rd time now....every time I learn something new!
    Cheers and best.

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    Replies
    1. We are all day traders, by nature we are impatient and want all information spoon fed to us with as little effort or work on our part=)

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    2. @Stake - Thanks a lot for your reply. If you are referring to Tim's post titled "Watchlist for February 24, 2014" which was written on Feb 23rd 2014, Tim indeed mentioned that he did not want to trade sub penny thus added "Price > $.01" filter, but it seem I cannot find how much "up" he is willing to go. The reason why I am asking is because Tim said TKMR is not the range he is comfortable... I would appreciate if I am missing something. Thanks a lot.

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  10. If have been looking into your BreakOut Strategy but what would you say WELL above average volume is interms of numbers like a range of some sort???

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  12. Since these posts are rather old, would you say that afternoon breakouts are still a solid pattern to play now?
    Also, do they only work on NASDAQ stock, or also on OTC or Pinksheets?

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