CHK DAY TRADE SETUP – VWAP BREAKOUT AND BULL FLAG FOR 3.83 : 1 MAX GAIN RATIO

Chesapeake Energy Corporation’s stock (CHK) made some large swings today, flying high during the first two hours, selling off violently far below the VWAP, then making an upward grind through mid morning. A late morning powerful breakout above the VWAP, and a mild break above a bull flag consolidation provided an excellent opportunity to make a potential 3.83 to 1 gain-loss ratio.  See my analysis below.

CHK - Winning Day Trade Setup - VWAP Breakout and Bull Flag - 04-23-2020

ACCOUNT OF EVENTS

The setup occurred on Thursday, April 23, 2020.

The markets at large experienced high volatility. It’s days like this that I get especially excited about trading during late morning, as I can usually find stocks making powerful breakouts.

In particular, I’ve been noticing lately that VWAP breakouts often occur during the 11 o’clock AM hour PT.

At 10:59 AM PT I took a look at CNBC to get a quick snapshot of general market conditions and any news headlines that may influence my trading decisions.

Indeed, the news outlet acknowledged the high volatility today, with overall market performance being flat. A headline at the time read “S&P 500 turns negative In volatile session as investors evaluate Gilead virus treatment, oil rebound.”

Then I checked Finviz for the day’s top gainers. CHK was on the list. Finviz has it categorized in the Independent Oil and Gas sector. In the past I have seen stocks in this sector surge up when a positive news headline regarding comes out. In addition, while there was no specific news on the company for the day, there was negative news that came out last week regarding the company halting its dividend. I’ve been noticing that this bad news then good news sequence often results marked upward swing rise of a company’s stock price.

I examined CHK’s chart. It had been on an hour long upswing, recovering from a sell off and nearing the VWAP, which was at $26.07. I waited for the stock to pull back and consolidate before committing to a buy order.

The stock hit $25.99 at 11:05 AM PT. It persisted at this level for several minutes, then pulled back between 11:11 AM and 11:12 AM PT it tested support at $25.50. This confirmed my buy decision and I put in a buy stop market order at $26.11 with a stop loss at $25.49. Since I wanted a quick win I wanted to go for a 1 to 1 gain-loss ratio, I calculated my target limit order to be $26.73 [ ($26.11 – $25.49) + $26.11 ]. I added my stop loss and limit prices to my existing order by adding an OCO (Order Cancels Order) condition. That way, my risk and reward would be automatically managed when my buy stop order got filled.

CHK traded in a narrow range for several more minutes before breaking above the VWAP and hitting my buy stop price at 11:28 AM PT. It quickly hit my target and I was out by 11:32 AM PT. It continued upward, peaking out at $28.48 at 11:45 AM PT.

While I am happy that I made a winning trade, a part of me is kicking myself for not seeking a greater gain. I’ve read countless times that day traders should seek at least a 2 to 1 gain-loss ratio if we are to have long term success. I suppose it was fear of missing out that got the better of me. I will surely work on resolving this.

NOTABLE DATA POINTS

Date: 04-23-2020

Day of week: Thursday

Approximate market performance at 11:00 AM PT: Dow +0.38%, S&P 500 +0.14%, Nasdaq +0.03%

Company name: Chesapeake Energy Corporation

Symbol: CHK

Sector: Home Furnishings and Fixtures

Recent news date: 04-17-2020

Recent news headline: Struggling Chesapeake Energy halts dividend

Approximate performance before buy signal: +28.79%

Approximate volume before buy signal: 5,520,759

Float: 8.86 million shares

Setup: VWAP breakout and bull flag

Buy signal time: 11:11 AM PT

Entry time: 11:28 AM PT

Maximum exit time: 11:45 AM PT

Entry wait time: 21 minutes

Exit wait time: 17 minutes

Order type: stop market buy

Entry price: $26.11

Stop loss price: $25.49

Maximum exit price: $28.48

Maximum gain-loss ratio: 3.83 to 1

Did I trade this setup? Yes

 

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.

SNBR - Winning Day Trade Setup - VWAP Breakout and Bull Flag - 04-23-2020

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

Date: 04-23-2020

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

Symbol: SNBR

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