Today I’d like to bring you one of the most recent trades I have put on, which is a long strategy in Alliant Techsystems (ATK). The market has overall been a bit toppy and stocks have been taking a beating. However, the long term trend is still up, and I always trade with the trend. In my trading system, it is one of my golden rules simply because every time I haven’t followed it I have gotten a bit beaten up. Sentiment and bullish/bearish opinions aside with the markets recent behaviors and afternoon sell offs, ATK has held up strong and is trending well and showing excellent relative strength considering the defense sector ETF performance (ITA, PPA, XAR). Let’s look over a chart to discuss the trade I am putting on and how I broke down the analysis of this trade. 

ATK_Daily_7_11_2013_-_3_28_2014.jpg

There are a few key factors in this trade that caused me to initiate half of my standard position size now, and hold the other half for a better entry. Here’s what I see in the chart:

  1. OBV Found Support & Broke Recent Hights
  2. Tight Coil / Symmetrical Triangle
  3. MACD Still Positive And Tightening
  4. Excellent Relative Strength (Compare: ITA, PPA, XAR, SPY)
  5. Volume Decreases Properly Through Pattern
Now, I know what you’re thinking. If this was a breakout from the pattern, it should break out and go. However, I think the lack of “pop” here has been due to the recent negative sentiment in the market over the past week or so. I feel that when/if the markets perk up again, this one will hold it’s trend and really get moving again. Let’s go over my plan. Remember: Plan the trade and trade the plan.

  1. Initiate 1/2 Position Now – We Technically Closed Above The Pattern And Are Holding
  2. Initiate 1/2 Position At 50EMA – This Puts Our Second Entry Near $133.25*
  3. Set Stop To A Close Below 50EMA – Also at $133.25
  4. Target Minimum Is $145 but I’m Expecting Higher If Market Plays Nice!
*One rule is that you never double down on a losing position, but obviously if we add now and again at the 50EMA this is what we will be doing. This would be cost averaging but our stop would stay the same. Since we are only adding 1/2 position now and are wiling to add 1/2 position in a “losing” trade it still equals one standard size and since we are not moving our stop our risk stays within our (my) personal system risk alotment. If this doesn’t make sense, feel free to leave a comment and I will do my best to elaborate.
I feel strongly about this trade, and that is my reason for not waiting for a pullback to the 50EMA. I don’t want to take a chance at missing a big move in ATK, so if it moves before it pulls back again, I at least have 1/2 position established to go for a ride, and on a pullback I can still look to add the other 1/2 at a still low risk level.