For me, $MU will always have a special place in my heart.

It is the first stock that I shorted. And over the last two weeks, it gave me $352, mainly through short-sells.

It's also the first stock that I entered after reading Trading In The Zone and applying what I learned in that book. Talking to other successful traders about their strategies also helped.

In this post, I want to briefly discuss the most recent trade I did with $MU, because it highlights some of the aspects from the book Trading In The Zone and my new approach to trading.

Here is the chart:

On the daily chart, you can see that this stock is in a downtrend (not to say "free fall") after their latest earnings report (release March 22, 2018).

The earnings report was actually positive and analysts kept the longer-term price target well above $60.

But the stock ran up quite high in anticipation of the earnings report and that often leads to a sell-off after the release of the report ("buy the rumor, sell the news").

I missed the big downfall (morning panic) on Friday (March 23).

But on March 26, I spottet the gap-up in pre-market (you can see this on the hourly chart in the image above).

When the price could not really push past 56.50 and came down hard at the open, I identified this as a sign of weakness and anticipated that it might come down at least to the pre-market opening price and potentially might fill the gap between after-hours and pre-market.

I entered short at 55.50 because it was a hard drop that could start a panic sell and at this level, the price also fell below the VWAP and the 9EMA.

My stop was around 56.20; 70 cents above my entry.

The price fell to 55.00 and came back up to retest 55.50 and the 9EMA.

This was the most exciting part of that trade, because the price action at that point could either lead to a winning trade or a losing trade.

Luckily, the price could not break through 55.50 or the 9EMA. (This would have been another good entry point for a short-sell.)

Once it started to downtrend again, I adjusted my stop to entry price.

When the price hit my first target, I adjusted the stop to 55.10, which would have given me a profit of 0.40/share.

Since the price action at my first target (54.50) looked weak, I held onto the trade to give it a chance to reach my second target around 53.70 (Friday's after-hours low).

When it broke 53.00, it looked like it could fill another gap on the daily chart at 52.42.

But the price action showed more strength at 53, so I exited when it hit 53.25.

Result: 2.25/share in about 1.5 hours! Patience worked in my favor.

 

This kind of patience is new to me. When it comes to trading, in the past, I would have jumped out too early, leaving too much money on the table. Or I would hesitate too long, missing optimal entries (and also increasing the distance to the stop level).

Now, I approach every trade thinking that "anything can happen". It either goes as planned or it doesn't. Both is okay. Because over a series of trades, I will come out net positive.

My trading strategy currently involves:

- trading higher priced stocks (with larger market capitalization)

- looking for setups that give me at least 2:1 or 3:1 reward/risk

- setting the stops at (psychological) levels where many invested traders would "naturally" either enter or exit their trades

- give each trade time to work itself out

- only exit when my stop is reached, or my price target is reached and the price action indicates that a trend reversal is imminent

 

I choose to trade higher priced stocks at the moment, because these kind of stocks often move a bit slower (giving me more time to enter and exit), follow similar patterns that work for penny-stocks, have bigger average true ranges (meaning that they make larger moves on any given day, often giving me a profit potential of at least $1/share).

However, that also means that I have to take smaller position sizes due to the larger price ranges.

Right now, I feel good with losing $50-100 per trade, when I can make $100-300 per winning trade. This feels comfortable with my current account size.

I will increase my position size depending on my account size, not my experience level.

 

I'm still at the beginning of my trading journey and this strategy. So there probably will be a few more adjustments along the way.

 

Over the last few trades, though, my losses where smaller than my winners, which puts me on the path to becoming consistently profitable.

 

This post is mainly a recap for me to look back at from time to time. If it helps you a bit, too, I'm happy.

Cheers,

Gordon