April 9, 2007

In this week's free newsletter, we'll look at a current example of how trading volatile stocks with  Wide Stops Can Mean Huge Rewards.

The biggest moves in the market often come from the most volatile stocks, and the best way to capture those moves often means using wide stops.

There's just something about a stock's personality that can't be ignored.  Some stocks are slow but steady (like Grandma), and others are a little more thrilling and fast-paced (like a Ferrari).  Sometimes the market conditions call for slow and steady, but when the momentum game is being played as it has been lately, a ride in the Ferrari is a lot more rewarding.

Last Tuesday in the Bandit Broadcast newsletter, I highlighted TSL as a swing trading candidate for members at TheStockBandit.com.  The stock had been on my watch list for the previous few weeks as it built a large triangle pattern in the midst of a big uptrend, and I was just waiting for the triangle to tighten to give me a pivot level for going long.

The triangle was developing nicely and trying to tighten, but TSL started to perk up a little early.  I knew the time had come to list the trade, and I posted it with a $48.00 buy point, which was as the upper trend line would be cleared.  Here's the original chart I showed then:

TCNet chart courtesy of Worden Brothers, Inc.

The following day, TSL triggered a buy as it moved up through the trend line, and we established our position.  Thursday was rather quiet ahead of the long weekend, but then today the stock got back in gear with the pedal to the metal.  It tacked on $6.82 (or 14.41%) on great volume, giving us a very quick ride higher.  Here's the chart as the stock stands tonight:

TCNet chart courtesy of Worden Brothers, Inc.

Finding the Big Movers

To grab a trade in a fast mover like TSL, it's important to know what to look for.  Characteristics like wide trading ranges, large previous moves, and solid follow-through are absolutely necessary.

TSL exhibited each of these.  The triangle pattern on my chart ranged between $51 and $35 over just a span of about 5 weeks.  It had run from $17 to $51 between the January low and the February high.  And the stock had a history of good follow through after breakouts.  The combination of these traits put it on my radar as a momentum stock with great potential.

The Key Requirement for Trading Volatile Stocks

Identifying large movers and catching them are two different things.  To catch a big move in a momentum stock means having some method for hanging on.  For me and the TSL trade, that meant having a wide stop on the front end of the trade.

The triangle pattern was the basis for going long, so a failure of the pattern would come only with a break below the lower trend line.  For TSL, that meant an initial stop of $43.00, or just over 10%.  That's rather wide for a swing trade, but my price targets are also relatively big for this trade.

Keeping wide stops for volatile stocks might mean a little more pain during the pullbacks, but it can also mean tremendous rewards when the trade goes in the right direction.  Fast-moving stocks usually need a little more room to breathe, just like that red Ferrari wants some open road.

Who Would Turn Down a Winner Like TSL?

At any given time in the market, there are ways to make money.  Sometimes it's in slower stocks that accumulate steady gains.  Other times it's in the sexy high-flyers like TSL.  Either way, we point them out to our members as we see them and as the market provides them.

Our price tag is tiny compared to the returns you can get in trades we highlight!

What's holding you back?  We tell you what's on our radar.  We tell you where to get in.  We tell you when to hold on.  We tell you where to get out.  And you'll even learn something along the way!

Catch the next big mover WITH us instead of hearing about it later!
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Jeff White
President, The Stock Bandit, Inc.
www.TheStockBandit.com

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