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AVGO Trade Setup Entry Triggered

The AVGO (Broadcom Ltd) short trade setup has triggered a short entry today on a move below 174.69. This one minute chart shows that the short entry triggered once AVGO crossed below 174.69 this morning. The swift move down, although not a gap, is one reason for using sell-stop orders for short-trade setups as sell-stop orders (to open a short position) will trigger when the stop price is taken out.

The trade parameters remain the same with a suggested stop over 186.00 & price targets at T1  (149.16) and T2 (140.29 with a potential longer-term swing target around the 115.00 support level which may be added, depending on how the charts of AVGO & the broad market play out going forward.

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Sep 2, 2016 10:00am|Categories: Completed Trades - Short|Tags: |8 Comments

8 Comments

  1. rsotc September 2, 2016 10:06 am at 10:06 am

    Nice snap-back on AVGO to the 173.25 area so far, offering another very objective entry close to the entry point for those that missed an entry on the swift drop that started shortly after the open today. Any bounce back up to the 174.68 entry trigger will still offer an objective entry although I wouldn’t add above that level. However, if the stock does snap back above 174.69 & falls back below without exceeding the suggested stop, the move back down below 174.69 would once again offer another objective entry or add-on.

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  2. russ66 September 2, 2016 10:30 am at 10:30 am

    AVGO: Order Rejected at Scotia Itrade (unable to borrow stock)

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  3. Eric K September 2, 2016 10:31 am at 10:31 am

    This move surprised me. Didn’t they beat on earnings?

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    • rsotc September 2, 2016 12:59 pm at 12:59 pm

      Eric, I have no idea. Haven’t looked at the news & don’t care either as of all the current short setups & active short trades, AVGO has one of the best (most bearish) looking chart patterns IMO. Also note that many, not just a few but many, stocks top on a blow-out earnings report (e.g.- AAPL April 28, 2015 all-time high) as the market looks out 6-9 months in advance. Any earning beat or miss is often priced into a stock as the insiders & others in-the-know that little birdies made it known to, knew well in advance what the earning would be & more importantly, how things are looking going forward. It could have also been a guidance provided on a conference call that cause the sell-off in AVGO today. Could be a thousand reasons but price is the single most important indicator and so far today, AVGO has clearly & impulsively broken down below that large bearish rising wedge pattern, thereby triggering an unambiguous sell signal.

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  4. Dazi September 5, 2016 8:48 pm at 8:48 pm

    Randy, would you please comment on the suggested stop over 186.
    In consideration of your take that it is a strong bearish set up, that the company traded at all-time highs last week and triggered a sell signal,
    I was wondering how your stop was determined.
    Thanks very much.

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    • rsotc September 6, 2016 10:01 am at 10:01 am

      Dazi- I calculated the stop on AVGO by using a 3:1 R/R using the current final price target, T2 at 140.29. Entry price was 174.68 which would be a drop of 34.39 on the stock if hit. 34.39/3=11.46. Then I take the entry price (174.68) & add 11.46 to come up with 186.14 & then I rounded down a bit to 186.00 to slightly skew the R/R a bit more favorable.

      An alternative, more aggressive stop could be set above the recent highs of 179.42, ideally on a closing basis (covering the stock if AVGO looks poised to close above that level shortly before the end of the trading session). Those planning to book full profits at T1 (149.16) might consider using a stop based on a 3:1 or better R/R to that level. Typically, the suggested stop is based off of the final price target.

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      • Dazi September 6, 2016 4:41 pm at 4:41 pm

        Appreciate you explaining, Randy, thankyou.
        I guess I felt a bit nervous…186 being so high [so to speak], in that it would be a fairly big loss if price reversed and the stop were hit.
        But what do I know? [no one answer that…!] Trying to learn – and understand; after all, that’s why I’m here.
        Thanks again.

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        • rsotc September 6, 2016 9:31 pm at 9:31 pm

          Dazi- No problem as I live for trading & enjoy talking about it as well as sharing my experiences with others.

          Besides the fact that if one was only targeting T1 for some or all of a position taken on a break below 174.79 on a short trade on AVGO, they should use a lower stop more inline with a 3:1 or better R/R based on their average entry price & average profit potential, the other thing to add that is relevant for any trade would be to do the math on the total dollar loss if stopped out.

          If there is one golden rule that I’ve learned over the years as a stock broker turned stock trader is that risk & return go hand-in-hand. That is the one constant in trading & investing that I put up there close to some of the immutable laws of physics & the natural world. Although one can opt to use whatever R/R ratio they like, for example using a much higher R/R such as 6:1 to risk a much smaller loss for a much larger gain, doing so only decreases the odds to the trade reaching the profit target before hitting the stop proportionally, if not exponentially, to the increase in the R/R. For example, going from a 3:1 R/R to a 6:1 R/R will double the chances to the trade hitting the stop before the profit target as the stop was likely set too tight. So while you might be keeping your losses smaller, you will also be certain to experience a lower rate of success on your trades.

          So to your question/comment above, if the 6.5% loss on AVGO (if stopped out above 186.00 following an entry at 174.68) is above your comfort level, then assuming that you like the setup, the solution is simple: Adjust your position size down according as to limit your total DOLLAR losses to what you would normally accept on a trade.

          e.g.- If you typically trade a position size of $10k with a maximum stop allowance of 3% on each trade (a $300 loss) while using a 3:1 R/R and shooting for a 9% or $900 profit, then with a trade like AVGO you would simple take slightly below a $5k position which would expose you to the same profit & loss potential in absolute dollar terms as would a typical trade with smaller profit targets & stop allowances (in percentage terms).

          Essentially, I look to find the most objective trade setups with the most favorable R/R’s (I will often post trades with R/R’s well in excess of 3:1) and then I figure out how much capital to place (risk) on each trade. That decision is primarily a function of the amount of loss (in percentage terms) if stopped out but also includes some other variables such as the likelihood of the position making a large gap beyond my stop, such as when trading low-priced companies with precarious fundamentals that might run an elevated risk of a sudden bankruptcy filing or maybe an announcement of a stock dilution. Another example would be when trading smaller biotech companies that have a lot riding on the expectation of one or a few potential blockbuster drugs in clinical trials, which always run the risk of an unexpected negative outcome at any point in time.

          The list of other potential risks goes on & on but I do my best to communicate which trade ideas run an elevated risk of a sudden large move that could catch traders off-guard by blowing past their stops. With that being said, I highly encourage every trader & investor to DYODD on any potential trade or investment candidate. Also, never put too much of your portfolio in any one stock or sector… always diversify whether investing for the long-term or swing trading on a relatively short-term time frame.

          Finally, when in doubt… just ask! The only stupid questions in trading & investing are the one’s that you never bother asking & end up learning the hard way. I and many others here have learned some costly but valuable lessons along the way & would be more than glad to share our experiences & thoughts with others.

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