Hi folks!
I just wanted to do a quick educational post on a recent trade we made inside of the Art of Trading short term trade portfolio! We were able to bank 10% in a short time frame, in a well executed manner. I think this trade is worthy of a review!
Lately and I’m sure you already know the theme in the market is has been to sell anything tech related. The crypto space hasn’t been an exception! I noticed on April 21st that $COIN stock was one of the first in the sector to breakdown through a multi month daily support area. Following that lead I started looking at other stocks in the same sector and came across this $MARA setup:
What caught my eye was how this stock was sitting right on the edge of multi-month support. It had tested the $19.50 support about 5 times prior to this day.
“Support” from a technical analysis point of view is a spot in the market where in which price action holds a level of support. In $MARAs case $19.50 was support.
Support creates a psychological spot in the market. Bullish market participants will look for areas of support to hold, oftentimes setting stop losses slightly below these areas. If these areas don’t hold traders on the long side will look to get out of the position while bearish traders will look for momentum to the downside and short it.
On a very basic level this is what support and resistance look like on a stock trending down:
As you can see in this above chart, when support breaks momentum to the downside can happen in a quick and dramatic fashion. Remember, the market usually makes stronger and more dramatic moves to the downside then it does to the upside. Fear is a very powerful thing in the market.
Knowing this, this is exactly what we were going for with the $MARA short side trade. A break of support that moved quickly to the downside so we could potentially book nice profits on a dramatic move down!
So, how did the trade play out?
We went short at $19.60 Thursday April 21st. Slightly above support to give us an attractive risk to reward on the trade.
Remember, these moves can happen fast so instead of chasing the setup when it breaks try to anticipate the move. What made $MARA attractive (as mentioned earlier in this post) was stocks in the same sector had already started to make a move to the downside, giving us a bit more conviction on this setup!
Monday April 23rd, we covered the first half of trade to manage risk to the upside if the stock was to make a quick pop higher. Here is what the alert looked like here:
$MARA made a gap down open that Monday morning which quickly reversed to the upside. Once it lost momentum to the upside and began to fall again, I covered half of the short position. Doing so allowed us to stay flexible with the quick up and down gyrations this current market environment has been presenting traders.
Moving forward into the week I continuously tracked the trade and noted any technical developments to the private AoT community. One thing I noticed on the 26th was this:
On the April 27th I decided to book the second half of the trade for a cool +10.5% gain! Indices were testing lows made in February and Mid March. I thought this was a good place to book the second half just in case the market decided to put in a big bounce. This was the Wednesday before markets rallied higher on Thursday.
Booking gains in a proactive manner in a bearish market is very important because countertrend rallies can be absolutely ruthless. Its generally better to book gains a little earlier then wish you had later, after the stock went against you.
Overall, from a technical and execution standpoint this trade went well. This education should serve well for similar trades you may try yourself, in the future!
I hope this helps!
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