RVP DAY TRADE SETUP – STOP AND GO FOR 1.1 : 1 MAX REWARD RATIO
News came out today that Retractable Technologies, Inc (RVP) was awarded a government contract to procure needles and syringes for a COVID-19 vaccination campaign. Its stock rose sharply during the first 15 minutes of trading. The setup provided a maximum reward-risk ratio of 1.1 to 1. I was going for a 2 to 1 reward-risk ratio and got stopped out at break even. See my analysis below.
ACCOUNT OF EVENTS
The setup occurred on Monday, May 4 2020.
The markets opened with a downward bias, with the Dow at -1.10% when I checked around 6:30 AM PT.
CNBC’s main headline read “Dow futures fall more than 200 points to start the week, airline stocks drop on Buffett sale.” Unsure of how to play this, I took a mental note of Warren Buffett’s sale nevertheless. At the very least, I prepared myself for another potentially bearish day.
Several stocks in the biotechnology industry were in the morning’s top gainers on Finviz. Given the current Covid-19 situation, I wasn’t surprised. So I set out to sort through the list with that also in mind.
STML held the #1 spot. News came out today that it was being acquired for up to $12.50 per share. Already nearing $12.00, I assumed it would not move much higher, so I passed on it.
APDN held the #2 spot. The company announced positive results from their Covid-19 vaccine tests. It was coming off steeply from its pre-market high, but it was hovering at the VWAP for a potential bounce.
ANIX held the #3 spot. The company announced that it had identified a potential therapeutic candidate to treat Covid-19. But it was already far below the VWAP, so I passed on it.
So I decided to watch APDN out the gates.
APDN fell through support quickly. I didn’t write the stock off completely as it was still too early to tell.
But my refresh of Finviz at 6:35 AM PT revealed that RVP had come out of nowhere and jumped to the #4 spot, up over 16% and with over 500,000 shares traded.
I quickly checked the news section on my Thinkorswim trading app and saw the positive headline, then quickly went over to its chart.
At 6:35 AM PT RVP made a strong move toward $4.00, hitting a high of $3.96 and closing at $3.88.
At 6:36 AM PT it started pulling back. I watched it for about 30 seconds to confirm. I quickly entered a buy stop market order at $4.01, with an intended stop loss at $3.49.
My buy order got filled at 6:37 AM PT as the stock rose sharply again past $4.00. I went to my open position and added my stop loss. I went for a 2 to 1 reward-risk ratio, so I also put it in my target limit order at $5.05 [ (($4.01 – $3.49) x 2) + $4.01 ].
RVP continued its move up during the next few minutes. At 6:45 AM PT, it reached the 1 to 1 reward-risk ratio price of $4.53 [ ($4.01 – $3.49) + $4.01 ] so I moved my stop-loss to break even. Within the same minute, the stock at reached a high of $4.59.
Unfortunately the stock lost steam and hit my break even stop loss at 6:53 AM PT.
I was disappointed to have traded a setup that looked so good but not turn a profit. However, I am glad that I was able to manage the trade well. The setup itself is a winner as I could have made money had I went for a 1 to 1 reward-risk ratio. When another opportunity to trade RVP comes I’ll keep this in mind.
NOTABLE DATA POINTS
Day of week: Monday
Approximate market performance at open: Dow -1.10%, S&P 500 -0.81%, Nasdaq -0.63%
Company name: Retractable Technologies, Inc.
Sector: Medical Instruments and Supplies
Recent news date: 05-04-2020
Approximate performance before buy signal: +16.10%
Approximate volume before buy signal: 505,157
Float: 8.90 million shares
Setup: Stop and Go
Buy signal time: 6:36 AM PT
Entry time: 6:37 AM PT
Maximum exit time: 6:45 AM PT
Entry wait time: 1 minutes
Max exit wait time: 8 minutes
Order type: buy stop market
Entry price: $4.01
Stop loss price: $3.49
Maximum exit price: $4.58
Maximum reward-risk ratio: 1.1 to 1
Did I trade this setup? Yes