Friday, July 29, 2011

$MILL - Beyond the Fib Extension (contra style)

$MILL was a stock that got some airplay today from some folks I follow on Twitter.  So even though I'm not trading today, I was able to follow along and see whether it would have resulted in any type of setup I would have taken.  Short answer, yes, it would have been a good trade.

Generally, on a gap down stock, the initial inclination is to look for short setups.  However, there are certain clues that can signal a contra setup.  One such clue is if the ORH (opening range high, generally the first 15 minutes) is broken.

In this particular example, $MILL broke out of the opening range shortly after 10:00 AM and quickly reached the 1.618 Fibonacci Extension (FE) at $4.30.  It then pulled back to the $4 level and found support.  On the 13th bar, a green hammer-like bar created the setup, and it was especially of interest since the high of the bar rested against the FE ($4.14) resistance level.
$MILL 5 min
The Setup:
This setup is one variation of what Trader-X calls Beyond the Fibonacci Extension (BTFE).  But I also add that this is a contra style (i.e. fade against the gap direction) setup.  For my trade tracking/journaling metrics, it might be more of a Pullback to the Fib Extension (PBFE) setup since it wasn't consolidating along the FE, but I'm still sorting out all out my administrative details. 

The Trigger:
  • Buy on a break above $4.14 of the 13th bar
  • Stop below $4
The Target(s):
  • $4.48 for the first half - since there's a 2.00 FE there as well as the usual $.50 natural resistance
  • $5.00 to $5.16 area - The $5 is a whole number, and $5.16 is the prior day low.  If price gets there, watch the tape/chart action and find any excuse to get out quick.
The result:
Worked pretty well. The first target was reached 15 minutes later, and the second target was reached within 30 minutes after the first.  Assuming some slippage, you would have gotten:
  • First 1/2: ~$.30
  • Second 1/2: ~$.83
  • Average: $.57
Not a bad risk/reward based on an initial stop of about $.16, which ends up being about 3.5R.

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