Move the Markets

Rackable Systems, Inc. (Nasdaq: RACK) Trade Monday

Posted on September 18th, 2006
Written by Richard
Posted in: N/A (old archives)

My one trade today was in Rackable Systems, Inc. (Nasdaq: RACK), for 0.72 R. I thought the setup was fantastic. I was watching for a break of 28.40, and the stock set up with a narrow-range candle just under 28.35. Great! It had been hovering in that area for 45 minutes. Even better!

But, as soon as I made this trade, I didn’t like it. Several red flags immediately went up:

• My market order took several seconds to start filling. Not that unusual on a break of resistance, but not what I like to see.
• My order filled in a trickle of 100 share increments, for an average basis of 28.46. An average basis a full 11 cents above my desired entry. The 100 share increments warn me that I might be in a crowd of tiny speculators, and no big money is participating.
• Because my basis was higher than I anticipated, in order to hold to my desired risk amount, my stop would have to be higher than I wanted. You can see on the chart, my stop is not quite below the previous candle. Had the stock not shot straight up, I would have eaten the commission and sold off enough shares to put my stop back where I wanted it.
• The stock shot up nearly 2% in a couple minutes. Too much, too fast, for my tastes.

So, when I hit 28.71, which was my 1 R profit point, in less than 2 minutes, I thought that was enough of a gift. I decided to get out. As I feared, my market order again executed in 100 share increments, across a nine cent range! My average exit price was 28.64, leaving me with less than 1 R profit. The chart (click to enlarge):

I was also a little concerned about what I hope were bad tick data, but which I’ve seen from multiple chart sources now. On my entry candle, you can see that shares traded around 28.06. If I had a stop in the market, that might have taken me out. A few bars later you can see the print up in the 29.90’s. After Ugly’s misfortune with crazy price action, I am a little nervous about these anomalies! Probably too nervous, but still, I am noticing them a lot more now.

More and more after this summer’s trading, I believe there’s a lot of merit in taking your money out of harm’s way as quickly as possible. In some respects, that’s what daytrading is all about, after all! Had I been a hold-til-the close guy on this one, for instance, I would have been stopped out for either a loss or break-even. At best, I would have made the same profit I did in two minutes, only it would have taken two hours. If the fills weren’t so sloppy, I would have had closer to 1.5 R on the trade, which is more than good enough to make a living, with my win rate.

I am a little disappointed with myself, though, for not shorting the stock during the market downturn in the afternoon. There was a decent setup for that under the 2:00 candle. It would have been another quick profit that I would have bailed on at 1 to 1.5 R. Most stocks I was watching discarded all their gains for the day in the early afternoon. If I had had the guts to short just about anything, I would have made a lot more money today.

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© 2010 Richard Todd. I am not a financial advisor, and nothing on the site should be considered investment advice or actionable recommendations. I'm just an individual, saying what I think, and sharing my experiences.