Monday, January 08, 2007

Today's Trade: XLE

I've decided to go for a low risk "catch a falling knife" play. Over the past three years, XLE, an energy ETF, has had some nasty selloffs that tend seem to reverse at the 200 day MA and 30 RSI. The stock has dipped just below this level late last week, but gapped above the moving average today. I bought 400 shares at $56.21. I placed a below the 200 day MA and last week's price bars at $55, with a target near resistance at $60. My initial risk is $1.21, with a reward of $3.79.

Note that when I say this trade is "low risk", I am not saying there is a high probability that this trade will work out. In fact, there is a decent chance my stop will get hit, considering the stock broke the 200 day by two points or more twice last year before resuming the trend. My use of "low risk" refers to the reward/risk ratio. Ideally, I'd like to use a stop just under $50, but that doesn't work for my risk parameters or the time frame I am trading (1 day-1 month).

1 comment:

walter said...

i am wondering: how do you generate your trade candidates, either short or long?

do you screen? or do you just maintain a very long watch list that you revisit everyday?