Here’s one way to stay in the high fliers longer. You won’t get out at the top…but you won’t suffer from premature ejection either. (October 18, 2014)
I want to look at Lakeland Industries ( NASDAQ:LAKE ). This is more of a trading tutorial than it is a trade; here’s your trade, don’t buy. Here’s why I’m saying this, this company makes hazmat suits. If you’re watching this video you probably know that because you would look at this video and go, “Oh, he’s covering Lakeland Industries ( NASDAQ:LAKE ).” That bird has already flown; this is what I’m talking about, and obviously we can see this, but let’s see how we could figure this out early.
You go back here and there’s your first pop, we look back here. This would be almost kind of a fake out, you could almost say, well this would be a little bit of a fake out, because you see this big massive volume spike here, and then you finally get a higher high. On something like this a lot of traders, where they see the volatility, they would set their price alert here at 9.40, which is the high. The stock hits a high, you’re in at 9.45 or something like that, what was the high, 9.80 and you got out. The point is this would be a really difficult stock to trade, and then of course you’re in and what happens? You get shaken out.
Okay, that’s fine, but let’s just follow this through. Note the volume, you’ve got huge massive trading volume. Now if this were me, and I wasn’t looking at this stock back then, I would look at this massive volume and say, “I’m concerned that this is the high, like huge massive climax high, but it doesn’t look quite right over the next couple days.” So now you see this, you’re trading this thing, and I think, I’m not sure, it might be a couple days later, but I think I remember telling members, “You know what? I don’t know what in the heck is going on, just go ahead and stay long but have a trailing stop.” Now that I think about it, it might have been the very next day that the stock rolled over.
So you look at this, you’re a volatility trader and you say, “I’m in”. So you’re holding this thing through the intraday volatility, even stronger volume here. Now right about here though you’ve got to start looking at the percentage gains. Look the company sells hazmat suits and you know what’s going on; you’re not going to have everybody having a hazmat suit in their garage for every single person, it’s not going to happen; but still a big demand for this stuff because of what’s happening, so you’re long the stock, you see this.
Now, you have to understand this will not go to 50.00, it’s just not going to go to 50.00, it’s a story stock, so you’ve got to be watching volume. I like to look at the intraday lows; as long as the intraday lows are higher, that tells you that each day the weakest the stock is, is stronger than the prior days weakness; so you want to be watching these intraday lows.
Now I look at this, you’ve got to think blow off top, it’s got to be a blow off top, right? There’s only one problem with that, there’s no intraday reversal, now you’ve really got to be looking at this. By the way, intraday lows, still working well, working very nicely. But you see how the stock is walking along the upper Bollinger Band, like well above the upper Bollinger Band; we can even change this to three standard deviations; it’s like 99.9 percent of the time supposed to be inside those.
So not this is really blasting out above there; it’s breaking all the rules, you’ve got to get out, right? But the stock’s not showing you a capitulation, it’s not showing you an intraday reversal; it closed near the top of the range. Now you look at this, and by the way, I’m not just taking you on a play by play down memory lane here, because we’ve got a lot of volatile stocks these days, in the bio tech field as well as some others, so you want to learn how stocks trade and apply this to your other stocks. You’re never going to get it all. On something like this, if you get out at the exact top don’t pat yourself on the back you just totally got lucky, okay? You’re not all that.
But on here, you can look at this and say this is kind of a spinning top, it would need to be a little bit higher than that, But the thing that really gets the attention is, number one: how high it is above the upper Bollinger Band, how the stock closed here at 17.72. The low here was 17.64, so basically about the same level. So it’s like, when the stock came down to where it closed yesterday, people were buying it, they weren’t selling it. But we still have higher intraday lows.
So what do you do? Say, “I’m out of here?” No, not yet. You’re going to have to give up some in order to stay in a really volatile stock for longer. Instead, look at the low here, 17.64 and say, “You know what? I’m definitely not going to be getting out at the exact top, but if this stock trades below 17.60 or something, then that’s my exit. I’ve ridden it all the way up from here, I got a monster trade I could just go ahead and sell.”
In fact, now that I remember, I’m pretty sure I suggested to people down here, somewhere lower than where it ultimately rallied to by far, that hey, you might want to take some profits. So I would have been wrong about that. But you look here and the low is 17.64. So you say, “All right I’m going to put a stop at 17.60.” Again, the reason is because if it trades lower than the prior days low, that’s a change. Well you didn’t get stopped out that day did you?
So you’re still long, still got higher, oh, even now, even now you’re still long. Why? Because the intraday low here was 20.25, the intraday low here is 20.75, so even though we got a massive reversal, and this would scare me, I would definitely want to be getting out here, but I wasn’t making this trade, what do you do? You say, “Oh okay, I’m going to raise my stop now.” The low here is 27.75, the low here was 20.25.You could do that or you could just say, “If the stock falls down below 20.00 I’m out.”
I would want to keep a little bit tighter stop but still, you’re looking at this, you’re watching it, still you’re okay, you’re up again. What did you make, another10 percent on this move, just applying this one strategy of higher lows; now you’re out. The stock traded the low 22.90; you’ve set your stop somewhere, 22.50, what ever it was. So just by simply looking at the higher lows here and letting your stops do the work for you, because I’m telling you, if you’re looking at this stock every single day, and you’re in a position, it’s going to drive you insane, because it’s just moving too fast.
It’s all good; you’re making a boatload of money, you want to hold it as long as you can. You sell it, oh crap I’ve got to buy it back. So you’re doing this and that, you’re trading around this, and you’re not really realizing until later that if you had just bought it and hung on you wouldn’t have got it all but you’d have got a lot of it. By just simply adhering to raising your stops to every day to just below the latest intraday low, as long as that intraday low is higher than the prior days intraday low, you stick to that strategy and you’d have been out right around here.
Close to the top? Not really, you’re out at 22.55, the stock ultimately goes up to 30.00; you had a heck of a pullback like 25 percent, but that’s trading. In a perfect world what you would have been doing is using an intraday chart, like an hourly chart, something like that. But the bottom line is, the stock is volatile as all get out. What you really just need to make sure you’re doing is using some type of strategy. Otherwise you’re still going to be sitting around holding the stock like a fool wondering when everybody’s going to start buying hazmat suits again.
So stay away from this stock now I think, until it shows some kind of a base. But frankly, once a stock makes a move like this that’s story’s pretty much done and you really just need to move on. But, if you can use these higher lows as a reference for stops you’re going to find you’ll stay in the strong stocks longer, and you’ll be taken out of the weak stocks faster.
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