SNBR DAY TRADE SETUP – VWAP BREAKOUT AND BULL FLAG FOR 3.62 : 1 MAX GAIN RATIO
Sleep Number (SNBR) recently announced its Q1 earnings that beat estimates, after which its stock price opened 24 percent higher than yesterday’s close. During the last 15 minutes of the first hour of trading, SNBR broke out above the VWAP, formed a bull flag consolidation pattern and broke out a second time. The move peaked during the second hour of trading, yielding a maximum gain-loss ratio of 3.62 to 1. I’ve been sitting on the sidelines observing price action lately, but I did trade this stock. Although I was correct in anticipating the bull flag breakout, and even though I set my stops and limits appropriately, I ended up taking a slight loss of $0.42 due to slippage. Nevertheless, the setup itself is a winner and it is going into my data tracking log. See my analysis below.
ACCOUNT OF EVENTS
The setup occurred on Thursday, April 23, 2020.
At market open I checked Finviz and browsed the list of top gainers for potential stocks to trade. SNBR was on the list but it wasn’t my immediate choice as it had only around 145,000 shares of volume and it was already trading below the VWAP. So, I moved on to other stocks that looked like they would offer better trading opportunities.
But my top choices turned out to be duds, giving false breakouts or falling immediately below the VWAP. I had a feeling this would happen as the markets were quite flat this morning.
I decided to wait for the markets to open up a little before making a trading decision, monitoring Finviz every five minutes.
I’ve narrowed my focus to trading only during the first hour, with some exception. At 7:19 AM PT I do a final check on Finviz and see how the charts look on the top gainers and I saw that SNBR made a strong breakout above the VWAP. It was up around 28 percent and traded over 1 million shares of volume. I decided to monitor it and ignore all other stocks.
At 7:20 AM PT it made another strong move toward $29.00, stopping right at $28.91. At 7:21 AM PT it touched $28.99 before heading lower.
It looked like a Stop and Go setup, so I quickly entered a buy stop market order at $29.01 with an intended stop loss order at $28.49 if the stock made a breakout. With this type of setup there’s no consolidation to accurately determine a stop loss level so I find that placing a stop loss order $.01 below a $1.00 or $0.50 is the next best thing.
The stock didn’t break out for a few minutes, but it maintained support above $28.50 so I added an Order Cancels Order (OCO) order condition. This means that if the price reaches $29.01 and my buy stop order gets filled, my broker would automatically put in a limit order and stop loss order, and when one of those orders gets filled, the other gets canceled. On this trade, I decided to go for a quick win at a 1 to 1 gain-loss ratio, setting my limit order to $29.53 and my stop loss to $28.49.
At 7:27 AM PT SNBR broke above $29.00, filling my buy stop order. Unfortunately, because the price moved so fast and my order was a market order, I got filled at $30.06. Since my limit order was $29.53, my broker faithfully sold my position at a higher price, but at $30.05.
For those of us who use conventional brokerage firms, also known as full service brokerage firms, occasional major slippage due to slow order fulfillment is a reality we must face. This is due to these firms routing orders through middlemen, which can take several seconds to fulfill. I suppose I shouldn’t expect speedy execution from a broker that doesn’t charge any trading commissions.
Ideally, I would use a direct access broker, which would send orders directly to the stock exchanges and take only a fraction of a second to fulfill. But these types of brokers charge trading commissions. Since I am just learning how to day trade and my trades are small, I will stick with my current broker for now.
NOTABLE DATA POINTS
Day of week: Thursday
Approximate market performance at open: Dow +0.45%, S&P 500 +0.49%, Nasdaq +0.41%
Company name: Sleep Number Corporation
Sector: Home Furnishings and Fixtures
Recent news date: 04-22-2020
Recent news headline: Sleep Number (SNBR) Q1 Earnings and Revenues Beat Estimates
Approximate performance before buy signal: +22.40%
Approximate volume before buy signal: 1,051,893
Float: 26.38 million shares
Setup: VWAP breakout and bull flag
Buy signal time: 7:22 AM PT
Entry time: 7:27 AM PT
Maximum exit time: 7:44 AM PT
Entry wait time: 5 minutes
Exit wait time: 17 minutes
Order type: stop market buy
Entry price: $29.01
Stop loss price: $28.49
Maximum exit price: $30.89
Maximum gain-loss ratio: 3.62 to 1
Did I trade this setup? Yes