The Pattern & a Game Plan: Breaking Down OKTA
- January 31, 2020
- / Jeff Cooper No Ads
- / By Jeff Cooper
Patterns in stocks are like X-rays that allow doctors to see what may not be outwardly visible.
It is the primary tool I use to evaluate the position of a stock.
“A chart records the factual price performance of a stock. Price changes are the result of daily supply and demand. Investors who train themselves to decode price movements on charts have an enormous advantage over those who either refuse to learn, just don’t know any better, or are a bit lazy.” – William O’Neil
Whether we like it or not, as traders, we are all in the pattern recognition business –looking to decipher patterns of accumulation and distribution.
The law of supply and demand doesn’t change any more than does human nature.
The Cup & Handle is one of the important price patterns.
It represents a base that following distribution and a subsequent accumulation phase that revisits the left side of the ‘cup.'
Sometimes a stock will strike a double top.
Other times a stock will see a pullback that respects prior resistance, which puts in a ‘handle.'
Most traders use the Cup & Handle on the dailies.
I have found that it is a viable pattern on multiple time frames… even intraday.
We have been focusing on January’s resurgence in what I call my ‘4 Horsemen’ in the Hit & Run Report.
These are software actors — COUP, MDB, TWLO and OKTA.
COUP came out first. The others have followed the leader.
One of the hardest things for a trader to do is to focus on the bullish action of a particular stock (or group) when the market has indigestion.
Be that as it may, when the overall market is sloppy as it's been for the last week, this is when the best tell in the market, relative strength, can be most revealing.
It is then when a stock says, “Damn the Torpedoes, Full Steam Ahead” that you should take notice.
OKTA has been on our radar for the last week when it threatened to break out of a Cup & Handle.
It pulled back with the market on Monday but held the ‘handle.'
OKTA tailed off on Wednesday, but despite early weakness on Thursday, it exploded out of the gate.
It was a green bean in a sea of red.
Rather than chase it, the presumption was with the market under pressure, we had the luxury of waiting for a pullback.
There were two tactical entries:
1) A Pullback Entry at 50% of the morning range or
2) A Side Door Entry… on a pullback all the way to the morning liftoff point.
A 10 minute OKTA below depicts the action and how we played it.
Thursday morning, with OKTA near session highs, we told members to take a pilot long swing on a pullback to 131.50 on our private Twitter feed.
Once we filled and OKTA continued lower, it revisited the liftoff point and we tweeted to complete the pilot, giving us a full position.
This is the benefit of scaling in with a pilot and then adding.
It is the other side of the coin of Trim & Trail — of scaling out to take partial profits and trailing a protective stop.
Then, as a stock rallies back toward session highs, you can peel out of half your position.
This is what we did with OKTA on Thursday — selling half at 132.30.
Now we have raised the stop on the second piece to 130.90.
This is our Hit & Run Swing methodology.
It is a hybrid of longer term swinging.
The benefit to scaling in rather than taking down a full position allows you to get an average price while observing the stocks behavior.
Moreover, we often average UP — when a stock is proving itself we will often complete a pilot position as it rallies.
This mirrors the behavior of institutions who, by necessity, must scale in and scale out due to their size.
As I like to say, speculation is observation, pure and experiential, thinking isn’t necessary and often just gets us into trouble.
In the heat of the battle, we don’t have the luxury of thinking.
Nothing always works in the market, but that is not the point… to be right or wrong.
You are right when you follow your process and your game plan.
To say it was comfortable buying OKTA as it knifed lower after an Opening Spike High on Thursday would be a lie. But it was the game plan.
pos OKTA
99.999% of traders have never even seen the Square of 9... let alone understand its potential.
Do you dare to be different?
99.999% of traders have never even seen the Square of 9... let alone understand its potential.
Do you dare to be different?