I wanted to follow up on this post I made on October 29th about the potential trade setup in ZNGA. After that, ZNGA chopped around for several days before finding support at the $3.43 price level where it had previously put in a swing low ( a higher low) at $3.40. It made a move up to the $3.80 in between just to shake out some short-sellers. Stocks typically do this before they are primed to make big moves because the market wants to allow the fewest people it can to profit. Smart traders don’t worry about the noise and instead just stick to their plan which is exactly what I did.
The stock never got to the bottom of the down-channel at $3.10 and instead held $3.40. This failure to traverse the channel signaled to me ZNGA was very strong and headed higher. I entered the stock at $3.48 with a half-size position when my trading system told me it was time. I added to my position to get a full position size when the stock broke above its previous high at $4.03 confirming there was upward momentum in the stock.
I sold half yesterday at $4.48 locking in a nice profit. If you remember my 1st target was 4.50, although I like to sometimes sell a few cents early before the other sellers come into the stock. The stock is now sitting at 4.39 after some other traders also decided to lock in a profit at 4.50. I also moved my stop loss up to $4.00 just below the breakout point and now I can’t lose on the remaining part of my position. I like to use this technique to trail my stop losses, rather than a fixed price trailing stop because it helps to limit my risk.
If the stock pulls back to $4.03 (the breakout point) and holds above this, I will hold on for $4.85 and most likely sell my full position their since that will be a pretty large move. If the stock doesn’t pull back all the way but instead only about 50% of it’s range I will sell 1/2 of my remaining position at $4.85 and most likely hold on for my third target in the $5.05 to $5.25 range. If ZNGA givens any sign of “topping” price action I will dump my remaining shares. The key is having a plan and sticking to it or else you are just hoping and praying. If it goes to $6, $7 or $8 after I sell who cares? By that time I will have my money in a new stock making me money rather than leaving my money tied up for weeks, months, or years.
Normally when enough short sellers get trapped and not that many buyers are long a stock, the stock is ready to break out and that’s exactly what happened. Following volume, patterns give clues about when this occurs. This style of trading, called swing trading is a bit different from my normal shorter-term day trading (which I prefer), but there is a lot of money to be made when you don’t mind dealing with a bit more volatility especially if you can’t stare at the computer during normal trading hours. There you have it. A real trade was given to you ahead of time.
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