This was a very quick one day trade that I did with Aphria (APH.TO) from January 15th to January 16th. There are a couple reasons why I even considered this trade before the market open.
- The marijuana sector has been on fire and many of the stocks just suffered a huge relative pull back from the highs. The individual stocks looked short-term oversold.
- We haven’t quite hit the phase where people think the top is in. So the “dead cat bounces” can be very strong.
The following chart notes my entries and exit out of this trade.
APH.TO opened down but quickly buyers stepped in and the stock price rose quickly into the green. As part of my rules, I didn’t jump in the first 15-30 minutes to avoid being victim to any unwanted fakeouts. Once I saw that the first 30 minute high was about to be broken I stepped in with a small position, using the previous day close as my stop.
Why the previous day close?
I entered the day with the mindset that we’re way too high into the clouds for the marijuana stocks. At the time of entry, APH.TO had just gone from red to green. If it were to sell back down into the red, that would be a huge sign of weakness to me considering the days prior, the stock was very weak.
The second entry came later in the afternoon as the share price was once again approaching the highs. The trend for the day was strong. I did not want to take on more risk than my original entry, therefore I revised my stop level to the daily VWAP.
On a swing trade, and on these type of trend days, I like to watch the close to make sure I’m comfortable carrying the position into the next day. My ideal close will have higher volume with a solid push into new highs right up to the final second. I’ve had the most success with these type of closes being followed up with a gap the following morning (unless there is any type of after hour external event to affect the share price). The close was almost perfect, but it was lacking the real big push that I was wanting and barely made new highs at the end of the day. I was not optimistic for a big gap the next morning.
I was fortunate to get the morning gap. The gap put the share price in range of the 52 week high and therefore I gave the trade 2 options.
- If the buyers were really in control, the stock should “gap and run”. I’d expect buyers to push for new highs quickly and push the shareprice towards a new all time high.
- If it doesn’t have the buyers, I expect that it won’t make new highs after the first rush up, and I’ll take my gains and capitalize on the fortunate morning gap if it breaks below the daily VWAP.
As you can see from the chart above, it didn’t have the guts to push for new highs. I sold and took my profits.
The execution was … just okay. I still get uncomfortable opening entries right at “breakouts” since I’ve been burned by fake-out breakouts many times in the past. The exit was clean.
Marijuana bull run – keep your expectations in check.
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