I am loving the box play. I’ve spotted 7 so far, and this is the third box play trade I’ve taken. Some of the ones I’ve spotted never made it to their targets, but none of them would have been stopped out. So far, so good. I’ve been incredibly busy, so I haven’t yet gotten them into StockTickr, but when I do I will tag them “box_play”. I am in the process of specifying the entries for the ideas I trade more exactly, so I can similarly tag all of my trades by the type of play they were. This way, I can get better statistics on each type of trade I like to make. More on that stuff later. For now, let’s talk about the money I made today.

The Setup

Systemax Inc (NYSE: SYX) was up for the day on higher than average volume, running towards its 30-day high at 21.00. It had taken a breather and was starting to run up again in a standard kind-of rounded cup formation (10-minute chart):

As the markets were still range-bound, I did not want to make a bet that it would make new highs. But, I would like to play a run up to the HOD @ 20.74. I spotted a box-play on the 1-minute charts.

Entry Criteria and Trade

1. A low is formed at 20.57. I draw the lower box line.
2. A high is formed at 20.63. I draw an upper box line.
3. The 20.57 low is re-tested.
4. A high is formed at 20.64. I move the upper box line to 20.64. Now the box is defined. If it retraces 25% of the way back into the box, the trade will be taken on a breakout.
5. The price dropped almost halfway into the box, so the trade was taken @ 20.64 when it broke to the upside. Profit target is 7 cents above the box, and 20.71. That was perfect, from my perspective, as I could get out just under 20.74, where some selling pressure was likely to be.

… and though just after the trade I was within 1 cent of stopping out, it soon ran up into a more comfortable range. A little later, my profit target was hit. Every now and then, I get email about “why do you take a trade for only 7 cents?” These people don’t understand that it’s all about the expectancy of the system. You can get rich 1 R at a time, I promise!

Since it usually takes 20 to 30 minutes for a box play to set up on 1 or 5 minute charts, I like to think of these as cousins to dummy-style entries (tight 30-minute range during a pullback), only with demands on the internal structure of the 30-minute consolidation. If you think the stock can run higher than the box height, there’s no reason you have to take all your profits at that point. Right now, I’m just playing the trade as prescribed, to get a feel for it.

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