As you can see from my morning notes for Friday, I had $TRUE (TrueCar Inc.) as my top “Fresh News” play. The stock was gaping down over 20 percent after missing earnings and revenue as well as handing in poor Q1 and FY 2016 revenue guidance Thursday after the close. I marked up my chart with $4 as support (all-time low) and $4.85/$5 as resistance. The reason I put TRUE as my number one “Fresh News” setup, opposed to number two or three, was because I thought there was a very low risk entry on the short side if there was a quick spike and failure on the open up towards that $4.85-$5 resistance. I thought that if I could get that spike up and failure up towards my resistance levels within the first five minutes of trading, there would be a high probability that the stock would go down at least another fifty cents, perhaps even go down towards $4. This was really the only setup I was focused on in this stock, as I didn’t think the stock would do much following the open (which I consider to be after 10:15 a.m.).
— Jake Huska (@MarketPicker) Feb. 19 at 09:21 AM
— Jake Huska (@MarketPicker) Feb. 19 at 10:44 AM
Before the open, I put in an offer to get short TRUE in the $4.90s (with an accompanying stop of course). About twenty minutes after the open, the stock spiked up and my offer got hit. While the spike up and failure took a little longer than I had wanted, I thought I had a good entry and was in a position of strength for a potential move lower. However, what I saw later caused me to cover most of my intraday short position. As you can see in the chart below, the stock then began to hold higher above VWAP, which I viewed as being bullish intraday. I lighted up on my intraday short position (probably had less than 1/4 left). I was stopped out of my last small piece later in the day, but because I had covered so much of my position when I was roughly twenty cents in the money, I still exited the trade for a decent profit, albeit not as much as I had hoped.
The point I would like to emphasis in this post is the importance of adding nuance to your trading. It isn’t enough to simply identify support and resistance levels to buy or sell at. You need to adapt and adjust to the unfolding price action and act accordingly. In this particular case, while I got short TRUE into resistance, the price action after I got short caused me to lighten up, which allowed me to still exit the trade in the green.
Thanks for reading. Please let me know if you have any questions or comments.