There are certain trading environments in which a purely technical approach may be tricky at best, and dangerous at worst. When competitive deals and response happen at speed of an impulse, the trading environment becomes prone to shocks and surprises. And although following the industry from a fundamental viewpoint may provide a slight advantage over a purely technical one, it seems as if both might be prone to getting sideswiped (this is even worse in the crypto-sphere, where fundamentals are often not even identifiable).
The emerging Cannabis industry such space.Tilray (TLRY) is one prime example. In less than a month, it went from $35 per share to over $235.00 at the time of writing. Soaring to $21.99 billion market cap, the Canadian pot company just smoked Canopy Growth as the biggest player in the industry. According to Bloomberg, Tilray is nearly twice the size of Alcoa and bigger than Barrick Gold Corp.
Although we don’t necessarily share the belief, as do many technical traders, that all fundamental or economic are absorbed into a security’s technical movements, we do assume that, minus the privilege of having access to fundamental knowledge, technical price action does leave a few signals that, at the least, can serve as entry and exit points for a short trade. Unless you were paying attention, Tilray was a tough one to catch, not just because it moved so quickly, but because unless you were able to assess and forecast a reasonable valuation, you might have been uncertain as to whether you were getting in at an overvalued price (like now, at $154.98). And this is where clear money management strategies come into play, particularly when, in the midst of everything you do not know, your bias and trading actions fail.
So what technical points might you have considered to enter TIlray during its parabolic move? Let’s take a look at the chart. By the way, none of this is rocket science, just very rudimentary technical price action principles.
The ideal and most obvious entry would have been at the initial breakout (1) at 34.10 with a stop at (1.1), the support level of 22.00. Volume was decent enough to have entered, but your main focus would have been whether a follow-through on much higher volume would have materialized shortly thereafter.
That follow through did occur by way of a runaway gap (2). Gaps make for a tricky entry, as they often tend to be retraced, or at least that’s how the assumption goes. But considering the volume at (2.1) , this made for a favorable long bias. Entering it on a breakout of the high, or on a breakout of the high of the subsequent local low might have been favorable though you would have had to reduce your position size as the the stop (2.1) at 37.65 may have seemed quite distant.
Advancing the chart to the present day, we see very similar patterns and breakout signals at yet another runaway gap at (3) with a potential stop loss at (3.1), and a clear swing high at (4) at the price of 97.36 with a stop at 72.50 (4.1), and another one at (5) at the price f 127.27 with a stop at 97.00 as shown at (5.1).
It is easy to point these entry levels in retrospect; much harder to take action when they did occur, as the price levels seemed rather high, and with no idea that the stock would go parabolic, Hence the importance of strict positions sizing.
Not all fast-moving stocks will give you technical clues with regard to entry points. But this one did. And if you were able to take advantage of any of them (five entry points), then chances are that you didn’t miss the boat.
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