A 7 Star Setup?!

A Tuesday Trade Edition: One of the most important concepts in trading is to review your work, and learn from the good and the bad. It’s critical to identify what’s working — to do more of it. Each week, you’ll get a trade from my trading journal, in which I explain my whole thought process from start to finish. Trading is all about finding something that works, and applying it, over and over again. That’s how you find trading success. So study up on this “Tuesday Trade” and let’s get to work.

Today let’s look at our COVID stock, Peloton (PTON). This trade is what I’d call a 7 star setup, which is crazy… because I’ve never called anything a 7 star setup before.

But this ticker is just that good right now.

Why did this have so much confluence?

Well, it basically had everything I was looking for…

  1. Solid trend with stacked moving averages
  2. Green Trend Strength Candles
  3. A Squeeze
  4. Positive volume for months on the VZO Indicator
  5. COVID stock (Peloton has seen an increase in orders since the pandemic because people want to work out from home instead of the gym)
  6. High short interest
  7. A run into earnings

This ticker has everything going for it right now, so it was a no brainer to trade it.

How I Identified The Setup

Once I’d established that this ticker was awesome, I stalked it for an entry.

I waited for it to dip down, and I ended up entering right when the squeeze shifted momentum to the upside. Then after that, it gapped up. The best part? Whenever a high short interest ticker gaps through the all-time high, that’s typically when the short squeeze happens.

As you can see on the chart above, Peloton closed the day up 8.05% — that’s a huge move on a stock. The reason why I like to trade these COVID stocks, and particularly ones that have short interest and/or a run into earnings and/or are recent IPOs, is because they have very volatile movement.

Now these types of tickers aren’t perfect for every trader because they have substantial moves. There’s no guarantee that just because it gapped up 8% today, it won’t gap down 8% (or more) tomorrow. But for those traders that want to get into trades that have substantial movement but still have high probability present (and are low cost)… this couldn’t be more perfect.

Now To The Profit

I placed this trade in the Mastery program where I paid $8.50 for the long call. I got into that on August 25th (happy birthday to me). I initially tried to get in for $8.15, but ended up paying $8.50. Then when I got out of the trade, I exited at $15.10 — not a full double, but it was almost a 100% winner on an aggressive directional trade.

That came out to $722 for profit.

It was a fantastic move, and it was really just in 3 days.

Looking Forward…

Now I actually have multiple different trades on this one ticker (because it’s just that good). But I wanted to strictly focus on just this long call today because I’ve already closed it out. The others are still open, and I want to see how they play out.

Then I’ll be sure to update you, so you can see how I traded long calls versus butterflies on the same setup.

6 thoughts on “A 7 Star Setup?!”

  1. Newbie question: the price for Call $8.50 is the premium for 1 contract (included 100 shares) or i must buy $8.50 x 100 to have 1 contract ?

    Reply
  2. Great trade. Confused by your entry. You wrote ” I ended up entering right when the squeeze shifted momentum to the upside” and you entered the trade on “August 25”. The Squeeze indicator was still below zero with a negative histogram slope on August 25. Looks like the histogram, although still below zero, momentum and slope changed on August 27, and eventually turned positive and moved above zero on August 28. I am confused by your entry August 25 entry “when the squeeze shifted momentum to the upside”. Thanks in advance.

    Reply

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