TRADE REVIEW: ABIO

For exact trade entries and exits, you can refer to the blog comments or on my twitter (@WeeklyTA). It’s documented in real-time and I have about 60 traders who saw me trade it in real-time in 2 different live chat rooms.

I had my 2nd best trading day of 2010 thanks to ABIO. At 8:30AM Friday, ABIO announced that “a patent was issued to them for treating heart failure patients with Bucindolol based on genetic testing” (http://bit.ly/c08SLF). Like other plays, I do not care what the news is. I only care about the reaction to the news. This is the principle of momentum short-term traders. That’s lesson #1 – don’t get too absorb into the news, instead, trade the reaction to the news. We see this rule all the time, but do you really put it into practice or do you let your personal biases get in the way?

Lesson #2 is actually watching and “stalking” a stock prior to a breakout. It may take forever, and yes it is many times boring, but you gotta pay attention to the setups during the day. Use a 1-minute time frame for momentum stocks so that you’re able to capture the first breakout out of a base. That’s what I did…I caught ABIO’s first breakout at $4.57/58 (after the opening gap). Do not miss the first breakout, or else it’ll get more difficult to maintain your emotional stability. Don’t let thoughts like “it’s already up too much” get into your head. If the setup is great, then take it.

Immediately after a huge power spike, I immediately look back to the multi-month daily charts to find key support and resistance areas. This helps me identify where I need to buy and sell intra-day.

We can see a high of $4.50 in November 2009. We can see a high of $4.88 back in July 2009. The next level would be the breakaway gap back in June 2008 with a high of $5.29. After that, the gap started to fill and the target was the filling of the gap between $8-9. Technically, ABIO breached every level, every high, on the way up. I keep these levels in mind because when the stock does break..it’s gonna BTFO. I’ve demonstrated this nearly every single week. Lesson #3 is to pay attention to past major price levels. Don’t sit there intra-day wondering where the stock should be because the chart will tell you.

Intra-day, you have to have focus and discipline when executing the trades. Of course, in hindsight someone could say “why didn’t you hold the stock till $9 and just get 100% in one trade?”. Well, problem is that when the first breakout happens, no one knows where it’ll end up by 4PM. Heck, I don’t know, which is why I trade each intra-day 1-minute setup as if it were the last. It’s a way to protect yourself from sudden reversals. Why? Stocks that explode to the moon will fall the hardest and many times, without warning. The important thing is to trade comfortably, take profits at appropriate levels, and play the stock till the wheels fall off. This is lesson #4.

The star that burns the brightest  burns out faster than the star that emits a cooler, darker light. Don’t forget this.

Lesson #5 – pay attention to volume. Volume is absolutely mandatory with momentum stocks. No volume = no trade. Notice how each intra-day breakout displayed some sort of sustained multi-bar volume spike? Combine that with a price spike and you got yourself a trade.

Key characteristics that make this spike “legit” vs. the other spikes in ABIO:

1) The gap was above all 4 MA’s (20,50,100,200) immediately. Not true for the spike in November and July 2009.

2) Volume was exceptionally greater than any other day in the morning. This signified to me that there was going to be a massive move. This alone does not confirm direction however. It just tells me that it’s going to be “one of those days”.

3) The stock was able to breach previous highs with very little problem. Resistance is supposed to knock a stock down, but it didn’t. ABIO would flag at, under, or above resistance (pausing) to launch itself again.

4) Once the gap was filling, the stock could not be stopped. A breakaway gap that fills in only one day is extremely, extremely, extremely RARE. This was an exceptional case.

Let it all sink in. If you have questions, then let me know.

Thanks to the folks who @replied me on ABIO. Hope you folks made some cash.

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