The main process behind this trade was the simple idea of $YECO bouncing into some of the areas of where I traded last week, as there is simply a ton of bagholders from back then, and therefore I figured that this would work as resistance. My entry idea was also quite simple, I planned to enter after we had touched/ almost touched any of the previous resistance areas and gotten a confirmation by the chart by a simple washout.
Turned out that was exactly what happened, so as I saw that confirmation by the washout I pre-entered a smaller sized order at the $8.48’s and got filled. The reason why I chose to only enter a smaller sized order at this level was the fact that I’ve noticed that I have to work upon not taking on to big size upon the front side of the move since the meaningful risk level at that time is the top of the washout/ HOD, and then to keep your Risk management in control you shouldn’t go full size. Not until the bounce “top” has been confirmed should you have a full-sized position, because the R/R is so much greater as that top is in, because now you can risk of the bounce top.
Notice although that many times the risk in terms of % might be similar, what’s much more preferable with the last method of shoring as the bounce looks like it’s turning is that that shows upon yet another conformational indicator that the momentum has shifted.
Shorted 100 shares at $8.48 risking 8.92-9.2 (-4.9%, -7.8%)
Shorted as confirmation of top, 100 shares at $8.30 risking bounce top $8.83 (-6%)
As I said they are very similar in terms of % risk, but I would argue that the last method is much more favorable as it brings higher odds of a successful setup/ short. But why do I choose to do both then? Why not only short on the backside?
The answer is simply to get a better AVG. Many times, I get lucky on the front side of the bounce and catch it very close to its top, and what’s so great about that is because then I’m able to feel even more comfortable adding size onto the backside since I’ve already gotten some shares in to keep my avg entry at a higher price level.
The last entry I had wasn’t too great, even though it was on the back side of the bounce. What made it not ideal was that I chased weakness as the stock had a brief wash which made me think that the bounce was over, and therefore I rushed in at $8.22. and just seconds later we bounced back to the $8.4’s.
Then I worked upon fixing another error that I’ve made the last couple of times with this setup, of not covering too early. And I did very well upon this manner this time, I trusted the setup and waited to cover not until the low of the bounce had been broken, and even better I didn’t just rush to cover as it got broken I had pre-entered an order as of where I thought It would top out which was $7.56. Why I had chosen $7.56 was due to the fact that the $7.5’s had been defending earlier in the day, and I also thought of the 7.5 is a psychological number, and 7.55 is also quite a psychological number so I wanted to make sure that I got filled above everyone else that was hanging around at the 7.5-7.55’s.
My second cover was supposed to take place in the second washout but I ended up missing it by $0.02. I had my cover at $7.11 and we go down to only $7.13… lol. But I stayed patient and stuck with the $7.11 order and eventually got filled. Why I chose $7.11 was once again due to the fact that I saw $7 as a round number + the fact that the 7-7.05 had acted as a small hold up support on the front side of the bullish move, this made me figure these two aspects could potentially create a bounce, and I wanted to be executed before everyone else that was trying to cover at 7-7.10 so therefore I chose 7.11. although in hindsight I could have waited to cover up this particular one until the $7’s. Since if we were to break lower then the existing low of $7.13, why would we only break down to $7.10?
Also, worth mentioning was that the two first covers are of ¼ of my position size, I decided not to cover up more than that so earlier on since I figured there weren’t any key support areas within the intraday chart, and that there would be more sellers throughout the rest of the day then buyers.
If I had a bigger position I would have covered up even less, something like 1/6 or something like that, but now since I only had a position of 200 shares it felt ridicules to cover up less then 50 shares at the time.
The last cover of the remaining ½ of my position came at $6.62. I made the plan to cover here as the 6.5’s had that high wick rejection that could be switched around to a resistance becomes support, + a small dip before the breakout on the front-side of the move. And last but not least there were some support/resistance areas from the $6.5 level in general if you looked at the 10-day chart.
Things I did well:
Trusting the setup – The fact that I fixed my previous errors of not covering to soon which was a sign that I didn’t trust the setup is one great step of improvement from the last trade. Also, that I stayed patient and trusted my own cover thesis Is also a sign of improvement upon not only trusting the setup but also myself.
Adding size on the backside – I also worked upon my latest error of not taking upon too much size in anticipation of that the bounce is going to fail. I made a perfect job of instead this time adding only half in anticipation, and the last half on the back side of the move.
Things I can improve upon
Not chasing weakness – The only error that I really made upon this play was that I got faked out by the wash as the stock had entered the back side of the bounce, but I cannot blame myself too hard about that because sometimes with these double top bounces they aren’t really sustainable, then bounce and then they wash out really quickly. So rather then a thing to work upon it is a thing to take notice of.
Size – The next step with my trading and this type of setup is to work upon taking on more size, I’ve found something that works for me, and I’ve found a way to keep the risk-management under control, so now I feel it is time to start experiment with some more size upon these plays.
Covers – Also something that I want to work on is to not cover until the second washout, rather than taking some of immediately into the first one, sure if the stock bounces right at where the initial bounce came from I’ll make sure to cover some because then it indicates upon a double bottom, but otherwise there is no reason to cover into the first washout. Because the first washout is just another confirmation that the bounce has failed and that the momentum has shifted.