Here’s how you change timeframes to stay in a trade. Let’s look at Cree (CREE)
Discussed in this article: Cree Inc. ( $CREE )
Let’s look at Cree ( NASDAQ:CREE ), I just switched to the 5-minute, but I’m getting ahead of myself. I mentioned this just yesterday, I said this isn’t the time to buy this stock because the stock went up so much that’s it’s due for a rest. It closing outside the upper Bollinger Band is a good sign, it’s a bullish sign, but still, when there’s no follow through on the stock you’ve got to be a little careful.
So my suggestion was, you look at the intraday high here, which was $70.09. So you set your price alert, I’m pretty sure I said at $70.00 so at least you get a little bit of a heads up. You want to know when the stock is coming up, if it’s coming up to test that high. Because what it will tell you is, if the stock moves above $70.09 this stock is going higher. Because after this kind of move the only thing that’s going to push this stock higher is a bunch of aggressive buying that absolutely outweighs the profit taking that’s destined to occur when a stock goes from $58 – $59.00, up to $70.00 in a matter of two days.
So when this stock clears $70.09 it is a buy signal. So you have to know this on the daily chart; You want to know this on the daily chart, you want to have that written down, and this is why; because this is your analysis. If the stock goes up above $70.09 then the bulls are definitely in charge and I’m in. The stock closes up $3.00 above that level, so you made what? You made a little under 5 percent for your trouble during the day.
So what happened intraday? Okay, $70.09, where is that? It’s right there. So in the first little bit, the first few minutes, let’s just take it down to a one-minute chart and really zoom out. So it didn’t take this stock long at all to get above $70.09, right here during the first couple minutes of the day.
So this is when you buy, you buy this stock, and then what do you do? Stay and here watch the stock, watch and then get shaken out because the stock moved below $70.00 clear down, “Oh my gosh, I’m down to 69.66? No, this is the two time frame approach that I talk about. It’s a decision time frame and it’s an action time frame. Your decision time frame is actually here on the daily chart; you say, “When the stock gets up above here then I’m in.” That’s your decision time frame.
Now, on the action time frame, you’re looking at the market today, you’re maybe using the one-minute or the 5-minute chart or whatever. Either way you take action when the stock hits your threshold, when it hits your point you’re in. Then what do you do immediately? Immediately you get out of there, this is your reaction time frame, you don’t want to be taking any more action; you want to be sitting on it.
Then you can go back to the daily chart if you want. If you do this, you go back out, you are not going to get shaken out by this pull back. Whereas if you’re focusing on this here, you’re saying, “Oh my gosh, lower highs and lower lows, look at the S&P 500, that’s going down too, all the wheels are coming off the wagon, I’ve got to get out of here.” And you literally sell, remember you’re selling essentially at 50 cents below where you bought a $70.00 stock if you stay in this time frame; so don’t do that.
You take your action based on the decision that you made, then get back out in the decision time frame. You’d still wind up being long this stock. So hopefully you’ll use this, I don’t want you to be afraid to buy high, as long as you know why you’re buying high. If the stocks working in your favor then you just work the stock, just let it go.