$PTON: R2G

$PTON: Front Running the Red to Green day Trading Strategy

                A Little over a week ago now I executed what I consider a very nice Red to Green (R2G) day trade in Peloton $PTON. I executed this trade in a 40-minute time span using the 5-minute charts for a cool 3.65% gain while only risking just over 1% on the trade. I was able to squeeze a little more profit out of this trade because I used a modified version of the R2G strategy. Hence the “front running” in the title. With a little home work you can find and execute these trades too! I look for these types of trades on a daily basis to coincide with my swing trading strategy. I would like to go over this trade and show you how and why I took the trade, what strategies, capital management, entry and exits I used in order to nail this sweet trade. Let’s go over those now!

                When I look for stocks to execute this sort of strategy I used on this trade, I’m looking for stocks with very wide intraday ranges. The reason I’m looking for stocks that can move say 2%-3% on a given day is because if you can get the entry right you can potentially bank a few percentage points in a very short period of time with minimal risk to the capital at hand. $PTON was the perfect candidate because it was making 5%-8% moves intraday. Now that I’ve found a stock that fits the criteria, I want to come up with a solid plan to execute upon. On the daily chart $PTON made huge moves intraday 5 days prior from 2019-12-11 to 2019-12-17. One common factor that stuck out to me was the stock liked to hold the 21-day moving average each of those days. Whether it was at the open or the close of the candle that was the common factor. Obviously, this area was a magnet for support. Knowing this, I want an entry slightly below this area in order to capitalize to the fullest extent on a reversal higher.

The second factor was this stock from 2019-12-13 to 2019-12-17 made massive moves down in the first 15 minutes of trading and then reversed and moved sharply higher shortly afterwards. Take a look at these 5-minute charts that show the consistency of the morning sell off into a sharp reversal higher!

 The third consideration was $PTON made a very strong move out of its range on 2019-12-17. On that day the stock reversed and continued higher on very strong volume for the majority of the day. I knew my best shot at a high probability explosive R2G trade was going to be on 2019-12-18 based on the fact that it finally made a move outside of the range from the previous 5 trading days. I decided that my entry target was going to be a retest of the top of that range $32.

 In summary the 3 key factors that helped plan out this trade were as followed:

1. The stock made massive intraday moves usually finding the 21 day as key support.
2. The ideal entry for a reversal higher should take place within the first 15 – 25 minutes of the trading day.
3. An initial entry at or near the $32 area would be ideal on 2019-12-18 for a ***R2G DAY TRADE! This area both coincided with the top of the previous trading range and also landed right near the 21-day moving average. An area we identified as strong magnet in the previous charts.

The Trade Execution

On 2019-12-18 my eyes were glued to $PTON. The market had set up as close to perfect as it was going to get for me to execute on this idea. Let’s take a look at a 5min chart of that day. We will review the first 15 minutes of action of $PTON that morning and compare it to the market overall.

$PTON 5 Min chart 2019-12-18: First 15 minutes of trading:

As you can see $PTON quickly sells off as it did the previous 5 days almost right at the open. Also notice the RSI is getting into oversold territory. I then quickly look at the QQQ’s. What I notice is a very promising and bullish development. You will notice that the QQQ’s had two previous very tight range trading days but on the 18^th the QQQ’s gapped up and started climbing quickly. I figured if $PTON was going to reverse it would surely end up following a long with the market. The likely hood of this trade working out has increased significantly because of this *If the overall market was RED that day, I wouldn’t have tried this trade. At this moment I decided to take the trade.

QQQ 5min 2019-12-18: Opening gap:

The trade was the easy part so I’m going to sum all of that up into a single chart. My next step is to wait for a green reversal candle and put in a Limit Order to fill the first part of my $PTON trade. This is part of the strategy. For a trade like this I’m not going to go all in before I get some confirmation on the trade. So, I went in 200 shares at $32. Even though I could have got in lower I wanted to buy the support area not anything below it. My next step was putting in a stop loss. My stop loss was at $31.50. Why? you might ask, well this was the big breakout spot from the previous day. I didn’t want to see it go below that area and on 200 shares I was only risking $100 on this trade. Very conservative on the risk. My next step was to look at the chart for my next order to fill. When will I add to this trade if it starts going in the right direction? I decided the $32.45 area was a good area for reversal confirmation so almost immediately I put in another order at $32.45 for 250 shares. Where do I go from here? Well I knew from the previous 5 days I have a 30 – 45 minute window to capture a reversal. Most days the stock reversed about $1.00 – $1.50 from morning lows before calming down. I was in 450 shares at $32.25~ So my target was anywhere from $33.25 into $33.75. I also knew I should expect a big push when the stock went green and subsequently after it cleared the previous days high around $33.35. I ended up selling the stock at $33.46 approximately 40 minutes after the initial entry.

In summary here were the steps of the trade:

1. Watched the stock sell off the first 15minutes as the overall market began to breakout.
2. Put a Limit order in at or above $32 @ 200 shares after the first 15 minutes.
3. First order filled at $32.00 ~200shares.
4. Placed stop loss at $31.50 (Previous days breakout spot)
5. Placed another limit order at $32.45 (Pivot for reversal)
6. Raised stop to $32 after the $32.45 order filled (Risk now sits at $170~)
7. $PTON gains some more strength around $32.90ish (Where it goes GREEN)
8. After $PTON goes green it pushes higher by $1 in 5 minutes.
9. Stock runs +++$1.50 from lows
10. SOLD AT $33.46! 4 cents from the TOP TIC of the DAY!!!

For a trade like this you really have to understand the price action of the stock. That’s the reason I spent so much time explaining the setup at the beginning and then spent less time on the actual trade. When I execute a trade like this I’m thinking fast and using my experience in the market in order to make the decisions. Sometimes you don’t have time to think before you act. In this particular trade $PTON gave just under 10minutes for an entry and less than 5 for an exit. I was able to bank $410 USD on this trade in a 40-minute time frame. That’s roughly $650 CAD. If you can find and execute on a setup such as this once a week you can substantially add to your bottom line at then end of the month!!!

I hope this day trading summary helped you gain some insight into the way I play trades such as this!