SFET DAY TRADE SETUP – BULL FLAG AND VWAP BOUNCE FOR 1.18 : 1 MAX GAIN RATIO
Safe-T Group Ltd (SFET) announced that it expects revenue growth of 146% to 169% during the first quarter of 2020. Its stock price opened at more than 37 percent higher than its previous day close. Within the first hour of trading it made a bull flag and bounce off the VWAP. It didn’t provide the 2 to 1 gain-loss ratio that is commonly looked for by day traders, but the setup was clean. I missed the trade because I hesitated due to usually seeing this setup later in the day, but I will put this in my data tracking log. See my analysis below.
ACCOUNT OF EVENTS
The setup occurred on Monday, April 20, 2020.
I checked Finviz.com when the market opened and saw that SFET was up around 36 percent. I noticed that a news headline was made earlier today mentioning that the company announced estimated revenue growth, so I put it in my shortlist to watch.
But the stock quickly sold off far below the VWAP. I usually look for stocks that are bull flagging above the VWAP during the first few minutes of the day, so I stop watching it closely.
Then, SFET made a break above the VWAP between 7:02 AM and 7:03 AM PT with a noticeable increase in trading volume. I am not use to seeing this so early in the trading day so I wasn’t confident in the setup, but I would soon find out that my hesitation would end up costing me…..
It pulled back near the VWAP between 7:04 AM and 7:05 AM PT, forming two red candlesticks in a row.
A green candlestick formed at 7:06 AM PT and remained within a fairly tight range between the VWAP and recent high. This would be a signal to start entering an order in my trading platform.
The most recent high was made at 7:03 AM PT at $2.14. Since the price had not yet broken out above this level, I would put in a buy stop market order at $2.16.
The VWAP was $2.01 when the green candlestick formed at the pullback, so I would place my stop loss market order at $1.99.
The difference between the entry and stop prices is $0.17. So, if I was looking for a 2-to-1 gain-loss ratio, I would place a limit order at $2.50, that’s $0.34 above the entry price of $2.16.
Unfortunately, the price never reached $2.50. It reached $2.37 at 7:13 AM PT before it started a downward slide that lasted through the trading session.
I like to move my stop loss to the break even point once price reaches a 1 to 1 gain-loss ratio level, $2.33 in this case. So, realistically speaking I would have been stopped out once price dropped back down to $2.16 at 7:17 AM PT.
However, if I was looking for a 1 to 1 gain-loss ratio, this would be a winning setup. Assuming a target of $.01 below the highest point of the move, the exit price would be $2.36. This would provide a maximum potential gain-loss ratio of 1.18 to 1.
I don’t have enough experience or data to know if seeking a 1 to 1 gain-loss ratio is more profitable for this particular stock, using this particular setup at this particular timeframe, so for the foreseeable future I am logging setups that provide at least a 1 to 1 gain-loss ratio.
NOTABLE DATA POINTS
Day of week: Monday
Approximate market performance at open: Dow -2.12%, S&P 500 -1.91%, Nasdaq -0.95%
Company name: Safe-T Group Ltd
Sector: Application Software
Recent news date: 04-20-2020
Recent news headline: Safe-T Group Ltd. Estimates 146%-169% Growth in Revenue for the First Quarter of 2020
Approximate performance before buy signal: +38.51%
Approximate volume before buy signal: 3,823,883
Float: 1.80 million shares
Setup: bull flag and VWAP bounce
Buy signal time: 7:06 AM PT
Entry time: 7:08 AM PT
Maximum exit time: 7:13 AM PT
Entry wait time: 2 minutes
Exit wait time: 5 minutes
Order type: stop market buy
Entry price: $2.16
Stop loss price: $1.99
Maximum exit price: $2.36
Maximum gain-loss ratio: 1.18 to 1
Did I trade this setup? No