Bella,
I was wondering if you had any tips on figuring out when to ignore the ATR on a stock keep looking for entries. AVP was a stock I thought I had traded well at the time given that it was already overextended at the time. It has an ATR of 0.4 yet in the end it moved well over 2 points. It had gotten to the point where despite being long earlier I was convinced that it needs to pull in and was hawking it for a short opportunity. Because of this I missed a great entry to catch its second leg when it consolidated at the HOD.
My question is, are there any signs I should be looking for that indicate a stock that has already gone well beyond its ATR still has room to run? I noticed that its volume was well 6x its average but should that multiple be applied to its ATR as well?
BELLA
To determine how far a stock may move intraday I first do my best to analyze the fresh news. The ATR for the stock is .4 but that is on days before this fresh news. How far can this stock go on this trading day? After doing this everyday for years with the stocks I have traded I developed intuition for how far a stock might move. New traders do not have this yet. Working on how far a stock might go each day will help you build intuition. It is so true that new traders just do not understand how far a stock might move.
Next I look at the long term charts to see where the nearest important technical levels are. I like to see stocks that do not have overhead resistance for many points if I am getting long. This makes it more likely that the stock will trend to the upside.
I watch for the battles done on the tape and then how far a stock moves away from these consolidation areas. If a stock makes a sharp move away from a battle area, or consolidation area, then this foreshadows there may be other strong moves to follow. I want to trade stocks that move away from prices. Often when a stock is In Play the second, third and fourth moves in a stock can be larger than the first.
I hope that helps.
Please join us for the PlayBook Webinar Series this Thursday at 4:15PM EST. We will discuss: The Technical Trade in High Beta Stocks.
Mike Bellafiore
no relevant positions
One Comment on “How you can determine how far a stock will move”
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