Short term setup on BABA (risky trade)Today we have a quick setup to share on BABA; in the title, we said it is a "Risky Trade" Why? Because the stop is super tight, and the volatility can trigger the setup and then go towards the stop loss in a matter of 4 to 5 candlesticks (even less, you never know)
However, with all that said, let's take a look at this idea.
a) The price is on a clear support zone, and we can see the next resistance zone at 270.00. That provides us a trading zone from 245 to 270. We want to be able to catch that bullish movement in case it happens.
b) As you can see on the previous 2 green arrows, every time the price came from below that level, that support level worked as a lunch pad towards 270.00
c) Can we assume it will happen again? We don't have any clue at all. However, if we have, let's say, a 50% chance on this setup, we are risking 1 dollar to make 3 dollars. And that's a bet I would take 100 times. Even if the real chances are 30%, I will keep taking this setup with a risk/reward ratio of 3.
d) Ok, with all that boring statistic explained, let's go to the planning. We will set Stop Limit orders at 245.23 / Our stop loss will be at 237.86 / Break-Even level is the horizontal yellow line (if the price reaches that level, we will move our stop loss to the entry-level (risk-free) / Take profit will be at 267.47
e) How much money will we set on this setup? THIS IS IMPORTANT: The reason most people blow their accounts is that they put at risk whatever "their hearts feel" (this is a bad idea). So, to answer the original question, we will be risking 1% of our Capital. Do you understand that? that means that we will keep having 99% of our Capital to trade if we fail miserably on this trade. Risk Management is critical, REALLY IMPORTANT!
f) Finally, if the price does not reach our entry-level and goes below the stop level, we will automatically cancel the setup. And if we have a stop loss, nothing to say, that's part of trading, deal with that.
g) EXPECTED TIME OF THE SETUP if everything goes as expected: 1 to 2 weeks
Thanks for reading guys! Protect your capital
