Hey Five Star Trader,
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.
Over the course of the last two weeks, it has been tough to find momentum set-ups. When I’m trading, I always want to trade a trending chart, but these types of trades have been scarce lately because we’ve seen a lot of relative strength in the Dow. A lot of those tickers had been lagers or choppy, but then Penn National Gaming (PENN) stood out to me as a ticker with a solid setup.
PENN is a honey badger in their field and I saw them occupying their own space, acting differently than other tickers in their sector so I started focusing on it. I took a look at its chart and noticed it had some nice pullbacks into support, either to the 21 EMA, the 34 EMA, or in my instance, the 50 EMA.
On the day it reached the 50, the market was pulling back pretty significantly, but instead of closing below a key institutional level, you actually have a situation where you had a nice wick. This meant that when you made that low, buyers were coming in instead of sellers. Then what happened over the course of the next five sessions was it continued to trade higher, making for a nice trade.
Breaking down my PENN trade…
Using a bullish butterfly, I was targeting a price point of around $130 because that was the price of its previous high. To further explain my options chain, I had a long strike at the 120 price point, my short strike at the 140 strike price, and then another long strike up here at 160. By doing it this way, I gave myself a $20 wide butterfly, with a range between $120 and $140.
About halfway through this trade, I was already $10 in the money and was seriously considering getting out before its March 12th expiration but ultimately decided to keep it due to its lower timeframe squeezes. I knew that typically when you get that shorter-term cup and handle patterns, and shorter-term timeframe squeezes, that is when you can see them gap up and trade into your next target.
In the end, I’m glad I reasoned with myself and considered all the factors before rushing out of the trade for a quick profit. Because I held on, I was able to maximize my profit by making 139% with the entry of $3.90 and the exit of $9.33.
Want more trading education? Join me for my free webinar on March 31st, or in my Mastery program which you can find at www.simplertrading.com/profits. You can also follow me on Instagram, Twitter @traderdanielle, or on Facebook.