I am experimenting with a new trading strategy. This is a log for a paper trade I'm taking using this strategy for the first time.
The new stock filter as part of this new strategy generated a list of stocks yesterday based on options volatility. Then I hand picked ScanSource (SCSC) in particular to watch today as it looked to be forming a basic setup where I can recognize.
To be clear, the signal is for short. So this is a setup for a short entry. Following my newly etched 3 rules, I'm not jumping in with a market order. Instead, I'll be setting up a short entry stop and attaching it with an exit stop on the order.
Following Monday's epic dive and Tuesday's rebound, the market has closed below 845 on Wednesday. In particular, the late day dive is looking good for the bear. Let's see if we can break below 835 tomorrow. In any case, I don't want to digress into a market analysis here. Just note that for the short and intermediate terms, the market seem to be going down. Thus, I'm looking for shorting opportunities.
Back to SCSC. Notice the negative divergence on the daily and weekly indicators. Also notice that \$22.70 is a long term resistance from last October. Thus, I'm setting a stop at \$22.70 for this trade.
Secondly, when should I enter? I have given the entry more leeway since we're in a choppy market. Also, I would like to enter at an obvious point when the stock is starting to tank. So there's a higher probability of success. I chose the entry stop at \$21.40. It is the top for a previous run-up on April 3. See figure 2.
My target is marked on Figure 2 at \$18.50. It was a major support for January and February before the run down into the abyss for SCSC. Also, I took into account the Stochastic information. SCSC has been in an overbought level on the daily for almost a month now (along with the rest of the market). The previous support point according to the stochastic was in early February, which had a range around \$18 to \$20. Furthermore, \$18.30 is the 50% Fibonacci retracement level if we're to go down.
The risk taken for this trade is \$22.7 - \$21.4 = \$1.30
The reward is \$21.4 - \$18.5 = \$2.90
Reward/Risk = 2.23
At 2.23, the reward/risk isn't that good. I would like to aim for at least a 3-fold return. However, I'll let this go this time because I'm only experimenting with this strategy. So I just want to see how it goes and learn from it.
I've set my simulated order to be submitted after 10am tomorrow for 50 shares (about \$1000 paper money). We'll see what happens.
Update: The short entry stop order executed at 10:01:59 am and shorted 50 shares of SCSC at \$21.36, simulated.
[caption id="attachment_1290" align="aligncenter" width="500" caption="ScanSource (daily left, weekly right)"][/caption]
[caption id="attachment_1288" align="aligncenter" width="500" caption="ScanSource (hourly left, daily right)"][/caption]