Different Lots, Different Plans

A lot of times stocks get stuck in small ranges or are in the developmental stages of a big move. Almost always they need a
catalyst to get the big move going. Some of examples of other catalysts are: big move in the futures, BPs coming
higher/lower, a big print, the BP finally done with their order, breaking news, and a breach of a level.

As you will learn from our next lecture there will be times when you will have two+ “signals” in a stock that is developing or is
just starting to release based on a hold/hunt order. These two signals can come from the same hold/unusual hold and it is
important to talk about the proper mentality needed to trade them properly.

Let’s illustrate this point by using the case we described in our last lecture of the range play with a BP handling a big sell
order. Let’s assume that you see the offer hold at the top of the range. From your tape reading skills you have a pretty good
guess that the stock is likely to break down. Thus you decide that you want to treat this trade as a trade2hold and so you put
on Lot 1 for this trade. 
Contemporaneously you also notice that the range is tradable and you would like to take advantage of the low risk high
reward scalp play in front of you. So you choose to add Lot 2 to the trade. In this case both Lot 1 and 2 have the same exit
plan for a loss – if the seller lifts the offer at the top of the range. However the plans for taking profit are very different in both
cases. In Lot 1 you need to have a reason to cover the stock: significant down move, significant move in the futures, big
move in your favor, a big seller lifting much lower in the play, etc. The plan for Lot 2 is simple as you are trying to cover near
the bottom of the range.

Let’s take this example one notch further. Assume the BP comes lower and holds the offer at the previous support
price/lower end of the range. By now you have covered your scalp lot described above and you are down to Lot 1. Now you
are presented with two more trading opportunities. For one you can add to your Lot 1 of trade2hold as the stock is finally
ready to crack – let’s call this Lot 2. But then you also can add a third lot to take advantage of the momentum that may come
of the break.

Now with three lots here are the plans:

Lot 1: Same as before. Out above the top of the range and profit when you have a reason to cover as outlined previously.

Lot2: You can treat it as an addition to Lot 1 which by default would adopt Lot 1’s plan.

Lot 3: Another momentum scalp play with an out if the seller lifts the bottom of the range. You are trying to cover this lot for
profit the moment the momentum stops to the downside.

So remember that different lots almost always have different plans. It is important to master this concept and train your brain
to trade this way. It is great way to add consistency to your numbers. Imagine what would have happened if the BP
eventually lost/ was done with the sell order but you had actually been able to make the scalp play 3 or 4 times before that
happening. Even though you the play didn’t work out, you were able to still profit from it. How many plays off the charts
would allow you to do the same thing?