Inspired by Trader X, Trader Mike and others, I thought I might try to copy bits and pieces of their styles and try a trade. I set my list up for gappers, and sorted by volume. I came across MON. I entered into the trade at the break of the high of the 4th bar on a 15-min chart (53.62). I figured the set up was, gapper, then what looked like three hammers, narrowing range, all within the upper 50% of the opening range bar. I put the stop below the tail of the previous candle at 53.27, where I was stopped out 13 min later. What went wrong? A couple things. First the fourth bar was not really a hammer. Secondly, this trade was done right as the market hit that reversal time of right around 10:30 EST. Lastly, and probably most importantly, I misread the chart. The opening candle actually had a very long top wick. I did not notice it since my wick color and width was set to the same as the time lines (yes…I have changed that). So at a glance, (remember…ADD Trader), it looked as if the price had stayed in the top 50% of the OR, when in fact it had actually retraced as much as 78% at one point.
Being a glutton for punishment, I attempted to re-enter MON a little later. I saw what I thought was a NR8, being the narrowest range bar in the last 8 bars. I had read that this often was the precursor to an expansion, hopefully in this case, in the direction of the opening gap. I was ready to enter, but got distracted, and when I came back to the chart, the move had started. Since I had to trade this stock, I rationalized that if it broke the high of the 5th bar, I could get it, which I did at 53.72. I set the stop below the bottom wick of the previous candle at 53.25. The position meandered a bit, never breaking the body of the OR candle. On it’s failed second attempt on the 19th bar, I got antsy and moved my stop up to 53.50. That stop was hit a couple of bars later. The problem with this trade is that once I missed the move above the NR8 I should have let it go. If I had actually gotten in where I wanted (about 53.46), I would have had much more profit cushion above my stop and I probably wouldn’t have been so antsy and moved it up. I would have probably exited before the close at around 53.71 for a small profit.
