As I pointed out on jaiku, a box play was forming on Goodrich Petroleum Corporation (NYSE: GDP) basically all day. It had a decent 20 cent target and healthy volume. If you can forgive one kind of loose touch, it actually had 6 touches to the boundaries before breaking out at the 7th touch. And, they are fairly evenly spaced, which is more important than you might think (with all patterns like these, you really want the price action to “fill” the space they are taking up).
At the time I alerted people to the play, I thought it would break out to the downside. I was kinda disappointed about that, because all kinds of moving averages live down there, and you never know when some dip-buyer will get excited. Luckily, I got a break to the upside right at the end of day:
As with most end-of-day box plays, the target wasn’t hit. But, I wasn’t stopped out, either, which is nice. AND, I got to use a stop tighter than the box-width, since it based a little at 33.25ish before breaking out. Not too shabby.
Since embarking on the box play, I have never lost money on it. I had one break-even trade in March, but that’s it! I heart the box play.
| Stocks Mentioned In This Article | |
|---|---|
| Stock | Links |
| GDP |  |  |  |
April 21st, 2007 at 11:20 am
Richard,
I’m curious to know why your target is .20 and your risk is .17
This is 1:1 ratio. Is this your normal risk:reward in your scalping strategy?
Nathan
April 21st, 2007 at 3:52 pm
The box play is not a scalp. It’s … a box play! :-) I would never risk .17 on a scalping move.
The box play does use a 1:1 risk:reward, but at the same time it appears to be a very reliable play, making the expectancy pretty good.
On the “Best of MTM” page (linked from the top), you can see a post called “types of trades I take” which describes all the setups I currently play.
If you look at some of the earlier posts tagged “box play” I’ve described the box play in general. It’s from John Carter’s Mastering the Trade book.