In a recent post I mentioned the importance of focusing on stocks with a fundamental News Catalyst when trading stocks on an intraday basis and how your win rate will be improved greatly. This notion is seen especially during earnings season as companies report their quarterly earnings, causing short term volatility immediately following the earnings announcement. Now, volatility isn’t always synonymous with profits. It takes an actual trading plan and strategy to successfully exploit this short term volatility (aside from pure luck of course). By archiving your trades and building up your trading experience in a systematic fashion, you will be able to trade with more confidence and more conviction in your trades, which will allow you to pull more money out of the market on a consistent basis. With that said, I’d like to go over a trade I made the other day (7/28/15) in order to illustrate once again the importance of finding your edge in this market.

The trade was in is Baidu ($BIDU), the Chinese internet search provider. The company reported earnings after the close (in the US markets) Wednesday (7/27/15), reporting  Q2 EPS of $1.81, versus the consensus of $1.87 and $1.88 reported last year; revenue for the quarter came in at $2.67 billion, versus the consensus of $2.6 billion. The company also said they were expecting third quarter revenue to be between $2.931 billion to $2.997 billion, which was below the company’s previously given guidance for the second quarter of $2.93 billion to $3.0 billion.

The stock quickly dropped to as low as $179 in the after-hours, which had previously acted as some support on the daily chart. The next morning in the pre-market, the stock broke below the lows from the after-hours session and was trading around $172 before the market opened on Tuesday. Zooming out to the longer time frame, I didn’t see any real meaningful support until the mid $140s(see chart below). I didn’t necessarily think the stock was going to fall another 30 points from its already large gap down, but it was clear the stock was broken technically.

I had $173-$173.50 and $175.30-$175.80 as resistance from the pre-market. Sometimes what you will see after a stock gaps down by a large amount is a quick pop on the open as the order flow from large institutions comes into the market. I was watching for such a pop and failure up to the two aforementioned resistance zones to possibly put on a short position. The stock opened up below those levels at $172.50. I spotted a low risk entry right on the open at $171 as VWAP was very close by. The stock also failed to hold above $171 on the tape, so I put on my short position with stops for 75% of my position above VWAP and the final 25% above the opening high. As you can see in the chart below, I covered some of my position on the drop to $168 and $167 and then proceeded to hold my “core” intraday swing short. Having already locked in nearly 4 points already, I wanted to try to force myself to hold a small core position since I thought it was likely to see the low $160s at a minimum that day just based on a simple ATR multiple. I ended up covering some of my “core” position into $164, so at that point I was pretty light. I had some school-related things I needed to get done that day, so I put in some bids below the existing market to cover my last little bit (my “hopeful bids” as I call them) and also had in my stop for the rest up above VWAP. The stock traded as low as $162 that day; after returning to my desk later that day, I ended up covering the rest of my position into the close above $165. You can see all of my trade management in the annotated charts below.

$BIDU, daily chart
$BIDU, daily chart

 

$BIDU, 1min chart (intraday)
$BIDU, 1min chart (intraday)

 

$BIDU, 5min chart (trade management)
$BIDU, 5min chart (trade management)

A look at the pre-market action in $BIDU this morning, down 13%

— Jake Huska (@MarketPicker) Jul. 28 at 08:16 AM

Got on my intraday swing shorts in $BIDU #Intraday — Jake Huska (@MarketPicker) Jul. 28 at 09:38 AM

Plan is to scale out on the way down (have done already) & hold core until clear reason to cover. $BIDU #Intraday

— Jake Huska (@MarketPicker) Jul. 28 at 09:41 AM

$BIDU new lows #Intraday — Jake Huska (@MarketPicker) Jul. 28 at 10:24 AM

Covered more $BIDU below $167. Holding core intraday swing short now. #Intraday

— Jake Huska (@MarketPicker) Jul. 28 at 10:28 AM

Covered what I wanted to cover in $BIDU short. Have stops for rest in as well as some hopeful bids to cover rest… #Intraday — Jake Huska (@MarketPicker) Jul. 28 at 10:59 AM

Covered rest of core $BIDU intraday swing short here into the close. May try to do a blog post.

— Jake Huska (@MarketPicker) Jul. 28 at 03:50 PM

 

Please let me know if you have any questions or comments. Thanks for reading.

Jake

Trading with an Edge (Part 2): $BIDU
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