Understanding Inflection Points

sspencerSteven Spencer (Steve's) Blogs, Trading Theory3 Comments

A core part of SMB’s trading philosophy is identifying inflection points in the stocks we trade each day. These are prices where battles take place between buyers and sellers. After a battle is over a stock will typically move very powerfully away from these prices. Sometimes stocks will touch these prices two, three, or even four times in a day. When a stock approaches these critical levels a pop up window will appear on our trading platform to give us a heads up. We then use our trading skills to take advantage of these great risk/reward prices.┬áBut, frankly, unless you’re an experienced trader with intra-day trading skills and an understanding of the various intraday setups that we trade, your chances of fully capitalizing on these opportunities are slim.

A second methodology that we use to make money each day are making trades at inflection points that were identified during a previous trading day that have become significant over a period of several days. The best recent example of multi-day inflection points that I can think of are in AIG. 46 and 43 were great inflection points in AIG on multiple occasions. These prices presented ten cents of risk on multiple occasions with several points of upside. It is rare that a day goes by that doesn’t offer at least one great trade based on a multi-day inflection point.

Today RIMM offered an excellent risk/reward short opportunity as it approached 68.50. On Friday, 68.50 was the low in RIMM as it was being pummeled after having issued a disappointing earnings report. After continuing its sell off yesterday RIMM began to bounce today. As it approached the key 68.50 level I was watching the tape like a hawk for an entry point on the short side. There was clear seller at 68.48 and I pounced. By the Close RIMM had traded down almost a point and never traded above 68.48.

In my next blog post I will give further color on how I find multi-day inflection points and how I specifically trade these scenarios. I will include some charts to help further illustrate. Just too tired tonight to offer any more….

3 Comments on “Understanding Inflection Points”

  1. I find your comment fasinating and valuable. Your clear methods make a lot of sense and are not the things one reads in the many books.

  2. I find your comment fasinating and valuable. Your clear methods make a lot of sense and are not the things one reads in the many books.

  3. I find your comment fasinating and valuable. Your clear methods make a lot of sense and are not the things one reads in the many books.

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