URBN Block Trade Triggers Profitable Flip-Flop
A neat trade today that I’d like to post because it exemplifies something I mention quite often: the importance of considering volume.
Now after the post last night that I stayed up too late and drank too many beers working on (didn’t get it published till today- beer messes up my beautiful Southern grammar even more), you might assume this is one of the few good trades among the many so-so and couple of stinkers I took today. And you’d be right.
In fact, today was my “tradin’ day for the week,” off from the ICK! other job. I did some adding after it was all over, and arrived at this statistic: I traded more dollar volume today than I did my entire first five years of trading combined! Of course, my first years were the “trade options with a $2500 account” days, so it won’t surprise you that there were some… sabbaticals… as I regrouped, and re-funded.
Back to business:
I took a long trade on URBN today off a classic setup. 30-minute bars, market strong, gap opening, decreasing volume, lower high after lower high. I even threw the patented Trader-X 5-period MA on there for some perspective (BTW, I like the EMA on 30’s, vs. the SMA).
The trade went off without a hitch. Once the 1230 bar broke the 1200 bar’s high at 18.47, it didn’t look back. Easy on the nerves. The opening range high was 18.90, and when you have such a long trip back to it, you’d better believe you’re gonna run into resistance. Therefore I put in a limit order to sell half at 18.85, which worked out nicely at 1310 EST.
Then we went sideways, 18.75 to 18.85, back and forth. I was impatiently waiting for a break, down or up, so I could make my next move. I had an audio alert set to ding if the price wandered down below 18.75 when I wasn’t looking.
At precisely 1332 EST my computer went “DING!!” — now at that point we had been 5-7 cents above my watch level, so this really hit me like a bolt of electricity. In one tick, the price dropped 12 cents. I went, “Oh, SH*T!”, but before I could even reach for my mouse, the price popped right back to 18.80 as if nothing had happened. Then I saw it- a massive volume bar down at the bottom. On a stock that was trading 200k-400k shares every 30 minutes, a single trade of 1,600,000+ shares had crossed.
If you’re a glutton for punishment and have read back through some of my ramblings, you’ll know I place great importance on extraordinary volume spikes. On swing trades (daily bars), a single bar can act as support or resistance all by itself.
So, the big block trade told me “You’re looking at the top and you have a few seconds to a couple of minutes to do something.”
So first, I sold out my remaining long position. Then I looked for a spot to get short. As the little sideways range had a bottom at about 18.75, I put in a stop limit order to go short at 18.74 with a limit of 18.72.
What happened next, well to quote Ronnie Milsap, it was almost like a song:
Now I certainly don’t smoke, but I’ve just relived this trade in my head as I’ve written about it, and… anyone got a cigarette?
zbs said,
November 8, 2006 @ 4:54 pm
Cool !
Will said,
November 8, 2006 @ 7:02 pm
Thanks Trader Z. Looks like you have an interesting site there, and I’ve gotta read more about that trade statistics evaluator.
chud said,
November 8, 2006 @ 10:35 pm
Nice trades.
john w said,
November 9, 2006 @ 5:59 am
I’m sorry but you probably shouldn’t have taken that trade in the first place. Look at URBN on a 15-minute basis using 4, 8 and 21 EMA (Exponential as you know are far superior to simple) for both the 7th and the 8th. (I know you didn’t trade on the 8th - but bear with me as an example).
On the 8th the 13th and 14th bars (following that low volume impulse bar (12th)) are almost screaming “buy me! buy me!” especially when coupled with the overall market action at the time. Then the 3:15 bar makes it abundantly clear that this is the highest it will go today (see the volume spike?). Which allows time to both exit the long and take a short for a high prob scalp if so desired.
Anyway just thought it was neat that a low prob trade came profitable (good for you) and the very next day there was a high prob trade in the same stock.
Of course you picked out the high prob short which is great too.
Will said,
November 9, 2006 @ 7:14 am
John - thanks for the input. Wednesday did indeed show a good burst for those who were watching. I believe I’d have noted the bounce off of Tuesday’s high (18.90) at 1030EST, and the (agonizingly) slow pullback on diminishing volume. I would have been a little more conservative and would have entered on the 1345EST break of the interim (18.83) high or maybe the same bar’s break of the big 18.90 high. Can’t say for sure, because by that time of day I’m usually out of setup mode and into trailing mode on the ones I did take.
Thanks also for the idea of the 4/8/21 EMAs. Although I don’t use moving averages for entries or exits, I’ll take a look at those and see if they help clear the cobwebs any better!
Michelle B said,
November 10, 2006 @ 5:36 am
Will, I appreciate your pointing out how informative it is to check out the price action and patterns from time to time on shorter timeframes, despite some of the managment of the trade being done via a longer timeframe.
As for your not taking the long trade to begin with as suggested by John W as having a low probability, my feedback is that you seem pretty talented in being quick and nimble. Some traders can ‘milk’ one volatile stock very effectively. And URBN fits that description, and for that reason I don’t trade it usually, because I know my niche well enough–what I do well per my mix of talent, skill, and experience.
What you did required exactly what you did. If a low probability trade is taken one needs to be on extra guard, as you were, booking partial profits at resistance and setting a sound alert. Then you were mentally prepared to dissect the volume on a shorter timeframe, knowing that a speedy decision was required, closing the remaining long lot, then reversing by entering short, managing that short trade with booking partial profits, and then closing it when a bullish candle told you to do so. So smoke a hypothetical ciggie for me also!
Will said,
November 10, 2006 @ 11:41 pm
Michelle- hypociggie smoked in toast to you! Thanks very much. I’ve noticed reversals like this in hindsight many times, but have little experience trading them in real time, normally just trying to stay focused on trailing the trades I have and/or watching for setups. Hopefully it’s something I’ll be able to repeat more often when the opportunity arises. I really appreciate your encouragement.
CEPH Daytrade- Watch That Volume! • dummyspots.com said,
November 22, 2006 @ 12:27 am
[…] All was going very nicely, 30min bars gently falling with the “patented Trader-X 5EMA” just above. But then near 1200 EST, that 1130 bar started acting funny- walking back up, then down a little, then up more, leaving a long wick on the bottom. Remembering the old block trade lesson I’ve used successfully on trades such as the URBN trade, I switched down to 5min bars to have a look: […]
Cal said,
November 28, 2006 @ 11:52 pm
Will,
Hey you made money, stayed in the green, happy for you. As for Michelle, I would like for her to check out my site and give me some feedback, she seems to be quite the trade analysis queen. :all hail::
-Cal
Will said,
November 29, 2006 @ 9:22 pm
I bet she’d be happy to give you some feedback. Be ready, though. She’s a straight shooter, and will point out when she thinks your head isn’t screwed on quite straight. But it’s that kind of honesty that helps us grow.