Yesterday after the bell, Verifone (PAY) reported earnings. The reaction was a swift selloff in after-hours trading. Today PAY presented plenty of opportunity for the Intraday Trader to get involved.
If there is a “secret” to trading, it is this… By using a combination of variables (usually simple tools), you can build an argument for your trade. In this case you would be building an argument for why you would trade PAY on the short side. Once in that trade you would continue to adjust your argument as conditions change to decide if you should stay in that trade, or exit.
The more variables you have lining up in the direction of your trade, the more conviction you should have. This is how you find a high probability trade scenario, that A+ trade.
Below are a few of the variables in favor of a PAY short today. More specifically, these variables could have been used to build an argument as to why you would stay short for the entire duration of the primary downtrend.
Please note, in addition to these variables, tape reading skills would have added additional conviction or lack thereof to the trade.
* There was a negative intraday catalyst – PAY issued poor guidance in the earnings report.
* It broke below VWAP, and stayed below VWAP all day. VWAP is (Volume Weighted Average Price).
* PAY was trading below the 8 period and 21 period Simple Moving Averages on the 5 min. chart.
* Every candle on the 5 min. chart was red for two hours during the primary downtrend (no sign of a bounce).
* The primary downtrend was accelerating until a fairly steep climax at the end (exponential selloff).
* It was trading below after-hours and pre-market lows (these are key levels).
* It took out the opening range to the downside (another key level). This added more conviction.
* SPY was essentially range bound, a slight downtrend. The Key: It was not working against the trade.
That’s it! Simple stuff that works like a charm.
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05/25/2012
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