The great thing about defining your risk when you make a stock trade, is you know exactly what you have to lose and what your potential is for gain. A trade on ACL, Alcon Inc. today represents that well.
The online stock trader has shown an example of a Bear short 2, or BS2 pattern when it was traded on BIDU’s 15-minute chart, and the 5 minute chart of APOL. The online stock trader will sometimes trade a Failed Bear Short 2, FBS2, and go long it. Here’s an example of this stock trade.
Alcon Inc. triggered the BS2 as shown below. Look at the daily chart. This is not a weak stock and really shouldn’t be shorted. The online trader decided to take a Failed BS2 if it triggered. The trigger bar low was 109.78. The intraday high at that point was 110. The stock trader would go long if ACL traded over 110. .22 was R. A target of 4R was set for the trade. So, as an example, if R was $400 risked, the online trader was shooting for 4R or a gain of $1600. So the trader would go long 1800 shares. Every stock is different, so factor in slippage! This trade was taken and filled at 110. A stop was set immediately below the trigger candlestick at 109.77, and a target of 110.9 was planned. Trading this stock that way worked today.
When the stock was getting close to target the order was changed. This trader was not amused as 110.89 was filled, and he watched the equity drop to the .5 range before going back up and getting filled. Ah… emotions. A no no. Here’s a shot of the daily. Alcon Inc. looks ready to bust higher.
So the FBS2 pattern can be used when trading a stock that shows strength on the daily, but may exhibit intraday weakness. This trade is best suited for the trader with a few online trades under their belt. Watch for them.
