Hey 5-Star Trader,
“Tuesday Trade” Journal: One of the most important concepts in trading is to review your work, and learn from the good and the bad. Identifying what is working is critical — to do more of it. So, to lead by example, each Tuesday, you’ll get a trade from my trading journal, in which I explain my 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.
For this week’s “Tuesday Trade,” I want to talk about the profits I took in Roku (ROKU).
ROKU is an American hardware company whose products are vastly popular and used for in-home streaming. It’s one of my favorite tickers to trade and often ends up on my watchlists, especially right before its earnings report.
ROKU soared, but I still wanted in…
On April 6, I saw ROKU taking off, experiencing a high volume breakout move (pictured below). By the time I was looking to buy, it was already up 7.5%, but I knew I had to get in on the action. Why? Because the Hot Zone was screaming at me, telling me now was the time to get in!
Below you can see a screenshot of the Hot Zone outlining ROKU’s historical behavior during the “run into earnings.” On average, ROKU has a 14.78% move up. So, this meant that despite its hefty price tag, it was still a good time to get in due to its high-probability of moving even higher as we got closer to the report.
Choosing the right target is key…
Keeping in mind that statistically ROKU averages a 14.78% move upward I took the current price. Then I added $48* to give me a target of $400. *Refer above to see how the Hot Zone calculated the 14.78% move to give me a $48 expected move riding into the report.
Though targeting $400, I left my range between $360 and $440. (See the picture below of my options chain for this order.)
Exiting for a profit…
Less than 10 days after getting into the trade I noticed the Nasdaq pausing at the highs and decided to take my profits on ROKU. I sold on April 14 for a $12.61 Limit Order (LMT). Not too shabby for less than two weeks’ time!
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