Real-Time Comments on AMCC Short of the Downtrend

Training Session on AMCC short alert

<@Chris> Today we will be going over AMCC chart
<@Chris> Please bring up www.realitytrader.com/calls/amcc.htm
<@Chris> First thing we see is a nice downtrend mov from 63 3/4 to 62.
<@Chris> Unfortunately we were not watching this stock from this move to play either the downtrend or the reversal from 62.
<@Chris> But it paints a nice lesson:
<@Chris> Capitulation selling leading to a reversal.
<@Chris> You can see the corresponding volume bars rising at the point of reversal.
<@Chris> From this we see a reversal point to 62 7/8 area.
<@Chris> So we have a mini range defined of 62 to 62 7/8.
<@Chris> The second test of the low held and just before 2:00 time period.
<@Chris> If we were lookign to trade within the range:
<@Chris> Trader could enter the trade at 62 1/8 no higher with stop at 62 low.
<@Chris> For this to happen we need: slow selling to 62 level with good support shown.
<@Chris> Fast selling at 62 paints a picture that 62 might not hold and reasonable support non existant says that if we are wrong, keeping the stop
at 62 will be more difficult.
<@Chris> As you can see in this graph, the volume is a bit erratic, but we described a situation that lower volume on price rise paints scenario that
downtrend is still intact.
<@Chris> Volume in this case did not pick up tremendously at 62 1/4 area and there is a little shelf of 3 bars at 62 1/2 that was serving as resistance
off the second test of 62.
<@Chris> At this point, I wanted to short 62 1/4 with stop at 1/2, assuming a risk of 1/4 point, 5/16 point if you waited for the confirmation break.
<@Chris> As you can see, this stopped us out as the low of 62, which would have kept the trade valid, did not occur.
<@Chris> I was forced to take 5/16 loss on the trade as 1/2 level was eaten too quick for a fill.
<@Chris> As the stock moved higher to the mini range high again, a trader had a reasonable and fair play to short the second retest of the high.
<@Chris> however, in this case, one of the two things needed wasn't present for the short.
<@Chris> Buying was slowing and this supports decision to short mini range high.
<@Chris> However, ask was thin and if any pickup in pace occured, stock was higher execution risk.
<@Chris> must like it was at the 62 1/2 level.
<@Chris> This is the difference in trading just off a level 1 and seeing depth off a level 2.
<@Chris> In this case, not seeing depth, maybe I enter and look good.
<@Chris> However, too many times, not being able to see depth is a detriment to your trading.
<@Chris> And a few stocks that jump on you will outweigh the converse side of the issue.
<@Chris> Next we start to see the slide off the 62 7/8 area picking up in pace again.
<@Chris> Any retest of the low would be the 3rd test and with pace increasing, I felt it was another reasonable look for short entry.
<@Chris> We see a test of 62 and a small bounce that allows us an entry.
<@Chris> At this point, the same setup occurs, stop near 62 1/4 with stop at 62 1/2.
<@Chris> This time fortunately it breaks on increasing volume.
<@Chris> If it didn't break, stop would have been taken again at 62 1/2 or 9/16 depending on your execution
<@Chris> The break of 62 confirms the downtrend is still intact so we begin to plan our exit strategy for the position.
<@Chris> Scalpers normally want to exit positions at first signs of strength, which in this case is defined in the area where the pink horizontal line is.
<@Chris> The 61 5/8 to 11/16 area was fine for scalpers
<@Chris> taking a 1/2 point or so depending on execution level.
<@Chris> Holders of the downtrend looked to bid near the 61 1/2 level as the stock was showing a bit of a support level in the 61 1/2 to 61 3/8 area.
<@Chris> Taking 1/2 to 3/4 on half of the position is reasonable for the risk assumed, which was 1/4 to 5/16.
<@Chris> After we take 1/2, we lower stop to breakeven level on anything remaining.

<@Chris> In this case, any buying at 62 to 62 1/4 and the trader can exit the rest of the position with small profit
<@Chris> or flat trade.
<@Chris> As the trade remains, we look for the tape reading priniciple of capitulation selling.
<@Chris> This is where we will look to cover anything remaining
<@Chris> or use it to at least lower the stop accordingly.
<@Chris> From about 2:50 to 3:10 EST
<@Chris> we see increasing volume with the stock dropping faster.
<@Chris> This is where the trade would take full shares on the trade, or lower stop to about 61 1/4.
<@Chris> You will notice 61 1/4 area is the area that broke sending the stock to under 61.
<@Chris> So using this is reasonable.
<@Chris> We alerted that taking rest of profits near 60 3/4 was fine.
<@Chris> For those that didn't, using 61 1/4 still gave them near a 1 point profit on remaining shares.
<@Chris> I enjoy this due to the cushion provided as the stock fell.
<@Chris> There is an opposite side issue:
<@Chris> Buying the capitulation selling for a reversal.
<@Chris> Unfortunately, I was unable to alert a reversal as I was focused on the short side of the trade that the reversal was being clouded my the short focus.
<@Chris> One more aspects to my own trading that I continue to work on.
<@Chris> Being a never ending student of the game, there are issues such as these I continue to learn.
<@Chris> So in summary:
<@Chris> First short cost stop loss 1/4 to 5/16 after second test held of mini range low.
<@Chris> Shorting the top of the mini range didn't fit a risk criteria as the ask was too thin
<@Chris> Shorting the same setup as earlier provided a setup and break.
<@Chris> Scalpers covered into first signs of strength.
<@Chris> Holders covered at least 1/2 to protect profits at level of uncertainty.
<@Chris> Anyone holding remaining shares waited for last gasp of selling to cover into.
<@Chris> The reversal after the final capitulation selling was missed due to clouded focus that I continue to work on :)