A few minutes ago, I scalped NYSE Group Inc (NYSE: NYX) for 0.4 R in less than 20 seconds. That was fun, and it reminded me a lot of my Noble Drilling Corporation (NYSE: NE) paper trade yesterday.
What they had in common was:
- A break to a new HOD during morning trading, after a good-sized retreat from the earlier high.
- The earlier high also happened to correspond to the high-of-day from yesterday.
- The earlier high was within a few cents of a round number.
NE had steady but lackluster volume yesterday, and I may not have taken the trade in my real account. NYX was posting strong volume today, so that’d be a fourth reason to get in. I should also point out that the break corresponded to an important position on the daily chart, so you can make that 5 reasons if you are looking at this as a trade, rather than a scalp.
Here’s the 5 minute chart I was watching. I bought in above the line, but it was moving so fast that my avg basis was 97.15… good sign on a breakout as long as it holds! You can see how yesterday’s HOD corresponds to the 5-min opening range today, and how they happen to be right at 97. Nice!
The lesson in all this is, the more factors there are in your favor, the more likely the trade is to succeed. That doesn’t mean it will succeed, of course; trading is a probability game, and the coin can still come up tails no matter what.
Well then, why scalp NYX and not try to hold onto it for a trade? Unfortunately, there were also a few factors against it, as well. First off, the spread was really wide at times, as much as 12 cents. Second, I know stocks can turn on a dime in the first 30 minutes of trading, and I made this trade at 9:45 EST. Second, I was buying into this stock at 97.15, at the top of a non-stop run up from 95.80ish (you can see that in the chart above). That’s a big run not to reverse a bit. Of course, as I write this, the stock is at 98.36, well over 1R for me. But, to get 0.4R in less time than I can eat a hamburger pleases me just fine. Plus, to get that 1R, I’d have had to hold the stock through at least one drop below my entry price. That takes some confidence that the wide spreads and early action do not give me!
Note: nyx was a highchartpatterns.com pick. I subscribe for their service, and I’m happy to give them free advertising when they make me so much money. With this trade, they just paid for themselves for another few months! You can see my review of their service here.
The current market environment has lot to do with why this worked that way. Same thing will not work when market is not in extreme momentum phase as it is currently.
@Pradeep: yeah, NYX went on to be incredible for the next couple hours, going up something like 5 or 6 points intraday. I still stand by my decision not to risk it. There were no low-risk entries on the 30 minute candles. My scalp made some good money, so I have no regrets.
[...] The key is that the openening range tops out right around yesterday’s HOD. It seems like when it breaks through that, it tends to do well. I mentioned this pattern about a week ago in regards to a trade I made. In that other post, I mentioned two examples I had spotted. I’ve been noticing it more and more. [...]