I was speaking to my brother-in-law about Apple this weekend--a stock that we have both recently traded but are now out of--and he commented on how he'd like to get back into it at some point. This got me to thinking...how would I get back into it? Well, I've put together a little scenario/trading plan and if it works out as planned (which it often doesn't), I'll take the trade. Here's a chart with some annotations indicating my various buy, stop and profit target levels:
Ideally, I'd like to buy in the $138-140 zone and take my profit at $160. This is just a range trade, the sort of trade that Apple has been offering up lately between breakouts to new highs. A good hard stop will be essential for this trade because I'll be buying a pullback and the problem with pullbacks is that sometimes they turn into reversals...which could easily happen given the run that Apple has had lately. My stop will be at $133.
So to recap:
- Long @ $138-140
- Stop @ $133
- Profit Target @ $160
This trade could provide a 22 point profit for a 5 point risk, assuming you get in at $138. That would be slightly over a 4:1 risk to reward ratio, which is certainly acceptable. What if the trade goes in my favor but it doesn't quite hit the profit target? I'll move the stop to break even once it gets halfway to my target.
There's the plan, now we just have to wait and see what happens. Always "plan the trade and trade the plan."
TLT
Ideally, I'd like to buy in the $138-140 zone and take my profit at $160. This is just a range trade, the sort of trade that Apple has been offering up lately between breakouts to new highs. A good hard stop will be essential for this trade because I'll be buying a pullback and the problem with pullbacks is that sometimes they turn into reversals...which could easily happen given the run that Apple has had lately. My stop will be at $133.
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