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Wednesday, October 18, 2006

APOL and the 5MA

APOL is a good example of how to use the 5MA that we have discussed in the past few weeks. A break of the second bar low would have tempted many people to enter - it was narrow range, closed red and below the OR low. But after breaking the second bar low, the third bar reversed and price rallied back to the morning high. So, you would have been stopped out.

Now look at how far away price was from the 5MA at the second bar - you could drive a truck through that space! So, it was ripe for a pullback. If you had waited, you would have seen a better entry as the sixth bar formed a "hanging man" (at resistance from a declining 5MA), after which price fell the rest of the day.

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QQQBall said...

clearly any $48 stock that gaps down 8 points or roughly 15%-20% is gonna be way off of the 5MA or any other ST MA. the pristine entry was a test of the opening price R. dumped 10% from there; thats about as good as it gets from R/R standpoint.

i missed getting filled on a similar set-up on CHUX by a nickle - maybe too cheap, but on these types of moves, they are so close to the buy stops above the open or HOD, that they can run 'em and shake you out. generally good for .35-.50 profit and maybe more ala APOL.

im cheap, i'd rather miss a trade or two to get my entries right.

S.J.T. said...

Interesting X. I have been watching the 5 since you talked about it a few weeks ago, and it does get you into many good trades. Thanks.

QQQBall said...


the fib extension on APOL was way down there. do you adjust the target when you have a huge gap like APOL today?

LP said...

Thank you so much for pointing out my mistake today. I go stopped out for a 1R loss. Even after making the mistake you just pointed out, I could have cut my losses as the very short term bottoming hammers forced prices to stall. I walked away, go my teeth cleaned, came home and still though I did the right thing by shorting the low of the 2nd bar. From about 11:30 AM to 8:30 PM, I thought that I went through all the steps and was right but it felt so wrong. I'm glad you traded this APOL today or I would never have learned this lesson. I guess I did learn something after I paid that bill.

LP said...

Sorry to post again. I noticed that on almost every chart you guys have posted on this blog has the 5ma close if not hugging the candles. I guess I still have to learn the art of chart reading. I now only have about a million. Your explantion of what I did wrong will let me sleep tonight and possibly have me trading better on my next trade. Thank you berry berry much.

Trader-X said...

qqq - I just assume it won't get there, and look for an obvious reversal...there were not any in apol. Had I seen a green hammer or a move above the 5MA I would have covered.

lp - good to hear. I originally talked about it in comments here.

Zoomie said...

Trader X,
Thanks for posting this setup. I traded APOL and I did exactly what you said not to do. You just saved me more heartache and money, thanks for the lesson!!