Here’s how I’m trading Amazon ($AMZN) (December 29, 2020)
AMZN
This is Amazon ( NASDAQ: AMZN ); this chart looks really goofy, doesn’t it? Well, this is what I do; a lot of times when I see a stock like Amazon ( NASDAQ: AMZN ) break out here I want to go ahead and buy the stock but I want to be able to know whether I am wrong or not. The only way I will know whether I am wrong is if I have an idea of what the stock is going to do so I will know if I am right.
In other words, I do want to kind of envision into the future. I want to say, okay, if the stock does this, this, and this, well that’s what I expect it to do. I expect it to do this and that’s why I am going to buy this stock. And that accomplishes a few things, first of all, it keeps me objective because I’ve already got my “plan” for the stock based on what I think it’s going to do.
So as long as it’s within those parameters then I don’t need to be overthinking things. I don’t need to be going, oh crap, is this okay, what’s it doing here? Because I have already crafted the plan beforehand. Not with respect to exactly where I am going to buy or exactly where I am going to sell. But with respect to keeping my head within the heat of battle, keeping my head knowing that I planned out this trade.
I drew where I think the stock is going to go. And based on what I think the stock is going to do, not what I require it to do, not what I demand it to do, but what I think the stock is going to do. Then as long as the stock fits within those parameters I’m good. And so yes, I want to buy it based on what I think is going to happen. And then setting a stop is for another video, basically though, you are going to set it right around here.
I draw out what I think the stock is going to do and then I craft my trade and start going. And so this is what I was looking at here. And then the stock broke out; we had this on our Active Trade List so this a stock that is going now. And then what I always do is start drawing lines, I see what the stock is doing here. I think, based on what I see here, this is what I could see the stock doing and this would be okay with me. A couple of days pulled back, then kind of some stabilization right here.
This is what I am looking at, I am looking at some stabilization. I think it’s kind of silly to expect the stock just to run up there, but I see some stabilization, the same as we got here. We’ve got a series of higher lows and then I am just tracking this stock. As long as it stays within these parameters I’m good. The same thing here and then this is ultimately what I am looking for. I am looking for a more orderly formation of what is really turning out to be the right side of a base. I want to see higher than average volume here, which is what I am seeing on these days.
This is really important, pay attention I am giving you pearls here. During consolidation like this, I actually want to see a dip in volume. I want to see volume do essentially what the price is doing. This is one thing that Dave Ryan, who is a market wizard, this is one thing that Dave Ryan teaches. He has talked about this; how when a stock is forming what is kind of looking like a cup and handle here. When a stock is doing that a lot of times you are going to see volume form the same thing. It’s going to carve out the same pattern.
So then as the stock starts moving higher you are going to see the volume start moving higher. That’s what we are seeing here. One other thing, during this little downdraft here, what do we see in the volume? We see lower volume here; so again, we’ve got low volume during the base. Then a high volume move up but all of this was lower volume.
And so now what I need to see in order to feel really, really good about Amazon ( NASDAQ: AMZN ) is, I need to see this kind of price pattern and I need to see volume improve. Now, what’s it going to take to get me out of the trade? That’s pretty easy, it’s going to take Amazon ( NASDAQ: AMZN ) falling out of this range. If it starts falling out of there then I may decide to kick the trade early, even if I am still profitable on it. But if it is kind of wallowing around here and trickling lower I am probably not going to want to stick with it.
But as long as the stock stays within these parameters then that is right according to my plan. So if the stock pulls back 3,250.00, maybe even a bit below, it’s still part of my plan so I am not going to sell it early. What I have seen happen with our members is, we will have a lot of people where you are in the right stocks but you wind up selling too early because the stock has a bad day. Bad meaning it sold off a little bit.
But what you are not really thinking about is the fact that there are two reasons a stock can sell-off. There are two reasons a stock can pull back, one would be a big seller coming into the market selling a bunch of stock. The other would be, the folks that were buying the stock just kind of take their foot off the gas and say, “You know what? I don’t want to buy it up here, I will buy it when it pulls back a little bit.”
In the first case where there is a big seller hitting the market then that is not a healthy development for the stock. But in the second case, when what you have is a buyer or several buyers or just large traders that are buying the stock, they push the stock up. They want to buy the stock but they just don’t want to buy it at that price. That demand is still there, it is just demand at a lower price but it’s the same demand. It’s the same buyer or series of buyers that want to own the stock. They are just not going to keep paying up for it because they are basically competing against themselves.
When that situation is occurring, that is healthy stuff, that’s healthy price action. That’s what I am really seeing here with Amazon ( NASDAQ: AMZN ). It wouldn’t surprise me if the stock rested for a day or two. Personally, I think it would be healthy; I would rather actually see that as far as a long-term trade than if the stock just runs up there. If it runs up really fast like this you are almost certainly going to get some selling at 3,500.00 and that’s going to be the end of the move.
On the other hand, if it is just kind of an orderly move, a little up and down, and up and down, and up and down, higher highs and higher lows, volume declining on the pullbacks, volume increasing on the rallies, that’s the kind of action that we want to see. So the bottom line for me is this, I want to be in Amazon ( NASDAQ: AMZN ) right now and as long as this stock continues to come out of this squeeze like this I think this is going to be a really good trade. I really, really like this trade, I hope you do too.
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