Missing an entry by a few cents is one of the most frustrating things in trading.
Find the best breakouts using this tool
One of my favorite charts topped out a penny under my breakout level this week. Then the next morning, it gapped right over that level and kept climbing.
The price I wanted is gone…
But the trade isn’t dead. The stock is still about $3 under my target.
Obviously, buying up here is a worse trade than buying at my initial level.
I’d be paying more for the same target, so there’s less potential upside. And there’s no support close underneath, so my stop would have to sit further away…
There’s a way that I can take the trade without taking on all of that extra risk.
Here’s the stock, and what it has to do today before I’d buy a full position.
See the stock and the level
The stock is Netlist, Inc. (OTCQB: NLST).
Netlist makes memory for servers and data centers.
It also owns patents on memory technology, and it went after Samsung and Micron for using them.
Samsung settled back in August. Then on October 6, Micron agreed to pay Netlist $600 million to settle.
The stock jumped on the news and ran to just over $7 the next day.
Then it fell back and spent about two weeks going sideways just under $6.50, my breakout level. That quiet base is why it’s one of my favorite charts.
My breakout level was $6.50, and the stock gapped over it on Tuesday.
If NLST holds above that level, I think it has room to run toward $10.
At least the stock has already proven it can get through $6.50. That makes the trade more likely to work than it was before the breakout.
So I take the trade, but with a smaller position than I normally would. I put less money on it because it’s a worse trade than the one I planned.
The small position keeps me in the trade if it runs toward $10. And because there’s less money on it, the loss stays small if it fails, even with my stop further away.
I add the rest of my position once the stock makes a new level. I want a price close to where I’m buying, so I can put my stop right under it.
The new level I want on NLST is $7, where it topped out at the start of September and again in early October. Both times it got turned back and sold off hard.
The shares bought near those tops are still under water. When the stock gets back to $7, a lot of them come up for sale from holders trying to get out even. It ran into that selling both times.
This week it made another run at $7 and stalled right there.
If NLST breaks $7 and holds above it, buyers have taken all the stock those holders wanted to sell. Then $7 is support under the stock, and my stop goes right under it.
(I can add the rest of my position and still keep the loss small if I’m wrong.)
I want a close above $7, not just a trade over it. In early October it traded over $7 two days in a row and closed under it both times.
If $7 turns it back again, I don’t add. I keep the small position, and my stop stays under $6.50.
NLST is just one setup I’ve got my eye on this week.
Get the best movers on your screen every morning using THIS.
Stay sharp,
Jack Kellogg
*Past performance does not indicate future results
