Fun Fact #10
Did you know that the S&P500 actually consists of 505 stocks? It still has 500 companies though. I guess they could change the name to the S&P505, but that wouldn’t sound very cool. Also, I like round numbers (and so do you, probably).
Below is a daily chart of Alibaba (BABA)
Notice how we’ve been in a nice trading range for the last 8 months. The trading range is from 165 to 205 (about a 25% range).
The demand for the stock (where buyers get aggressive) occurs in the 165-175 range, while the supply for the stock (where sellers get aggressive) occurs in the 195-205 range. You can see that clearly in the chart above.
Trading Idea: Buy shares of BABA whenever it drops to the 165-175 range, and sell it when it reaches the 190-205 range. Your stop loss would be either a fixed dollar amount below your entry, or set below 165.
I prefer scaling into my trades so that I don’t put too much pressure on myself to nail the bottom, but I generally do not scale out. I prefer moving up my stop loss or getting out of a position completely.