You can chase volatility pops. By definition, if you want to trade, you’ve got to chase. Let’s..
Discussed in this article: Electronics for Imaging Inc. ( $EFII )
I want to look at Electronics For Imaging ( NASDAQ:EFII ). I featured this yesterday, EFII, as a volatility squeeze that looked like it was poised to breakout; that’s exactly what happened today. I think you want to just stay long this stock, if you happened to take advantage of that.
Now, I mentioned yesterday that this was a fairly illiquid stock so you needed to be careful about that. By the way, I didn’t move the stock, I don’t have that much reach; I don’t think so. But I want to show you this, let’s say you looked at that video and said, “Okay yeah, I want to buy this stock.” This is what it looked like yesterday, for two days in a row it had poked out above the upper Bollinger Band and these volatility bands, that’s what they measure, very, very tight, ready to go; your high here was $30.88. So you’re not sure, the market was actually a little bit weak at the open, not that this should trade along with the market necessarily, but you’re not sure whether you want to get long.
So what you do is, in order to make that decision, take that action, you get down into a really tight timeframe. Frankly, you can even start with a one-minute if you want; you can see how illiquid this stock is. But first thing in the morning the stock was on the move. Let’s zoom out to a five-minute chart and you really get a sense here that the stock gapped up at the open, and so you look at this and you say, “Okay, well I see this stock up here at 31.14 or so, wherever it was after the first five minutes. It doesn’t look to me like this stocks going to pull back.” By the way, isn’t that what you would expect, that it not pull back, because it is just in the initial stages of a volatility expansion?
So think about it, if this stock were to pull back and give you an opportunity to buy at yesterday’s close, would that not be a failed breakout? So by definition you’re going to be chasing this stock, you’re going to chase the stock. A lot of times the way to trade a gap is to back away, let the stock come back and fill the gap, this wasn’t enough of a gap for that, but a lot of times the way to trade the stock is let the stock go, gap up, and then when it rolls over and starts trading lower, that’s when you make your move, you take your stock. But here, your looking at the daily chart, you’re not expecting a pullback, you were expecting this stock to do essentially just what it’s done, gap and run.
So you look at this, this is what happened after the first five-minutes, you go ahead and buy some stock. You should be in this stock by 31.14, 31.15, easy. Then as soon as you’re in you get out at this time frame and you don’t look back, you just let this stock run its course. It’s up nicely today, my bet is it will continue to move, not forever, but should probably continue to move with this kind of velocity for another day or two. You just have to know what your time frame is. Are you just trading these very short swings here, where if the stocks gets up to $32.50 or $33.00 you’re going to go ahead and sell? Or did you take the stock because you like this uptrend and you want to stay involved? I can’t tell you the answer to that question; all I can do is tell you that that absolutely is the question that you need to be asking yourself.