Trading Lesson: 2nd Day Trade—$ADBEDec 21st, 2013 | By sspencer | Category: General Comments, Steven Spencer (Steve's) Blogs, Technical Plays, Trading Lesson
Adobe (ADBE) announced their earnings recently and the stock had a big change in price the following day. The stock had heavy volume, which is something I look for to setup a trade for the next trading session. This is one of the easier trades we teach in our training program and it’s called “2nd Day Plays”.
After a stock has some type of catalyst, it attracts many large market participants who take positions on the first day. As short term traders we are trained to analyze that price action and then develop a plan of action for Day 2.
I like to see the stock pull back from the previous day’s highs to look for a buying opportunity. ADBE did just that and gave me an opportunity to get long in the stock with a very favorable risk/reward.
ADBE did run up on a five-minute chart after my entry, but the upward energy faded and ADBE began to sell off. I closed part of my position and had a tight stop to keep any losses small. I was still looking to see the stock reverse and continue back to the previous day’s close.
THAT DIDN’T HAPPEN
I ended up closing the rest of my position by hitting my stop and I lost overall on the trade. It’s important to control your risk and have a trading plan before you enter the trade.
HAVE A TRADING PLAN
I knew my game plan before I opened the trade. I knew the longer term price action of the stock and where I felt the stock’s support would be and the potential profit in the trade. I knew before the trade started where I wanted my stop loss and my profit targets to be. Don’t enter any trade unless you know in advance what you are going to do if the stock gets to specific prices.
CONTROL YOUR RISK
My risk was small and controlled. At the same time, I had excellent potential profits.
I discuss the details of this trade in this video, including the trade management.
These trade setups happen very often and offer the trader an excellent opportunity to make money. This particular trade didn’t work out, but many of them do. The two lessons learned are:
1. Know what your plan is before you start the trade
2. Control your losses on the losers so the winners bring in more than you lose
I’ll keep doing this trades every time I see them.
If you have any questions about this setup, please leave them in the comments section below and I will answer them.
Are you trading these 2nd Day Plays? How have they been working out for you? Tell us your experience or ask questions if you have them and I’ll answer them in the comments below.
Steven Spencer is the co-founder of SMB Capital and SMB University which provides trading education in stocks, options, forex and futures. He has traded professionally for 17 years. His email address is: firstname.lastname@example.org.
No relevant positions
Steven Spencer is long $ADBE