February 20-24 Market Review

Hello, Warrior Traders! My name is Arsh and I am the newest Jr. Moderator to join the Warrior Trading team. I would like to take this chance to quickly introduce myself. I am a 22 year old college student based out of Corona, California. I am majoring in Business Administration, and I am in pursuit of my MBA. Stock trading is a venture I picked up 2 years ago as a means to generate income while finishing my education.

Although it has been a roller coaster of a journey, I am fortunate I have had Warrior Trading by my side to help guide me through this learning process and evolution into a successful trader. It is an honor to be a part of the team and I am looking forward to sharing my thoughts and commentary on the market with the rest of the community.

To describe my trading style, it is based on pure technical analysis. I like to use support/resistance levels, trend lines, moving averages, VWAP, and volume, to name a few (in order to get a better understanding of technical analysis, refer to Mike’s blog post: https://www.warriortrading.com/crash-course-technical-analysis/.) My goal as a trader is to find low risk, high reward setups where I am able to risk a small amount (in my case, $300-400) in order to capture a much greater profit (in my case, preferably $800-1600+)

At minimum, you would like to be able capture 1:2 risk/reward on your trade, and if you managed to nail a good setup, you may be able to extract much higher profit on very low risk amounts. I feel I am best at doing this on large cap stocks, such as $FB, $NVDA, $TIF, and $KHC, and for this reason, I do not tend to trade stocks that are under $20 and less than $1 billion in market capitalization.

Utilizing Technical Analysis to Generate Trading Ideas

In order to better help you understand how to generate trading ideas based on technical analysis, I would like to share some of the trades I shared real-time within the Warrior Trading chartroom last week, February 20-24. Some of the stocks we traded included $KHC, $XPO, and $NVDA.

$KHC Long (February 21, 2017): On February 21st, $KHC was gapping down pre-market on moderate volume on news that they were planning on cancelling their planned merger with $UL. Prior to this day, $KHC spiked as high as $97.70. Although I tend to stay away from trading merger plays, I decided to keep a close eye on the stock for a bounce. What you can see in the picture below is a 5-minute chart of $KHC, and below it a daily chart of $KHC.

market review

 

Trade Thesis/Setup: $KHC had a big support level at $91.30 on the daily chart, as well as the $91.85 support level which was the low of the prior day’s candle. After I saw the big surge from the open on heavy volume, as well as the big doji candle at 9:40, I became very interested in buying this at VWAP and the 9/20 MA’s, which fell at around $92.50.

Trade Execution: As the stock began testing the VWAP and 9/20 MA’s again (pictured by the green circle in the stock chart above), I wanted to buy the stock at $92.40’s with a stop under the close of the 9/20 MA’s and VWAP, or $92 at max. This meant my max loss was about $.40c (with the potential for a smaller stop), and for this reason, my back of the mind target for the stock was about $0.80-$1.20. Once I bought at $92.40’s, the stock shortly began to pop hard to the upside, as expected. I covered half of my position at the $1 mark, and the other half for about $1.40. This resulted me a profit of $1.20 on 1000 shares, or $1200. This was an amazing example of the low risk, high reward trades I look for, as I risked $400 to make $1200.

 

$XPO Long (February 22, 2017): On February 22, 2017, $XPO gapped higher with an open price of $52.25. The pop was short-lived as the stock began to fill in the gap back lower. Around 10:00, I began to watch the stock for a potential bounce off of the 20 EMA. The hope was that it would plunge down right into the 20 EMA, however, it began consolidate between 10:00-10:15 before finally making the push into the 20 EMA.

market review

 

Trade Thesis/Setup: As $XPO finally made the push into the 20 EMA, I decided that it was a good opportunity to begin buying, as it was a likely spot for a bounce after the giant retracement it made from the open.

Trade Execution: Our entries, represented by the area shaded in green, were $50.35, $50.50, and $50.65. My first buy of $50.35 was executed as the stock made the push into the 20 EMA. The following buys were made shortly after, as I saw the stock begin to respect the EMA and move higher. The target for the trade was a push into VWAP, but as the stock pushed up to $50.90, it showed a sign of heavy supply. I managed to exit my position at $50.78, right before it decided to plunge once again. Although I was only able to lock in about $400, this was an example of a trade that was low risk, with potential to provide high return.

$NVDA Long (February, 24, 2017): $NVDA opened significantly lower with the market on February 24, at $97.07. However, on a surge of volume, it recovered all of its losses with an hour of market open. This is the day following a big selloff on $NVDA due to a downgrade by analysts at Nomura. On that day (February 23), the stock had a hard intra-day selloff that based out at $100. After NVDA recovered that $100 price again, as pictured below, it was alerted as a long candidate to the chat room.

market review

 

Trade Thesis/Setup: After analyzing the setup that $NVDA had made, the thesis was that the stock would decide to move higher from this $100 base it had formed. Represented by the blue circles in the picture above, we can see that every time $NVDA came back to test the $100 zone, it would bounce.

Trade Execution: The bounces off the $100 mark gave me confirmation to begin buying between the $100-$100.50 price range. At 11:35, I alerted to the room that I started buying $NVDA at around $100.50. Shortly after, NVDA decided to break out above $101, and I managed to sell my entire position between $101.50 and $101.70. This resulted in an $1100 profit on 1000 shares.

Closing Thoughts

We had some great trades take place in the week of February 20-24. They are proof that we as traders can generate trade ideas and plans strictly by implementing various techniques of technical analysis. Although technical analysis is a form of art that one will only grasp with time, education will greatly shorten your learning curve. Make sure to follow me in the room to get a better understanding of this trade style!