Find Your Best JOY Setup

 | Feb 13, 2013 | 10:30 AM EST  | Comments
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Stock quotes in this article:

joy

Let's walk through what our options are in this trade setup in Joy Global (JOY). The formula for making money with my work is: Setup + trigger = trade entry. Then, manage it.

Part one of the formula is the trade setup. The setup zone we are currently testing in JOY is in the $58.33-$60.23 area. Keep in mind that these areas will always be adjusted when a new pivotal high or low is made. These levels and price relationships are dynamic, not static. Since the price has tested and held above this key zone, there are a number of ways you can trigger into the trade setup, depending on your own comfort level and risk parameters.

We have already seen some buy triggers in this one, but it's not too late to get involved in the trade since the upside potential on this setup is to the $71.62 area. For educational purposes, I am going to walk you through a couple of these trigger entries. Let's start with a very short-term trigger that a daytrader can use.

 

Source: Dynamic Trader

 

If you look at the five-minute chart of JOY, this will show you an example of how a daytrader might enter against a Fibonacci price cluster zone. The initial trigger occurs when both a prior swing high is taken out (the $60.92 high in this case), along with the 8/34 exponential moving average (EMA) crossover to the upside. If you miss the initial trigger entry or just prefer waiting for a pullback after it, then the guidelines I use are to wait anywhere between a 0.50- 0.786 retracement of the prior swing and ideally this will overlap the area of a "symmetry" or 100% projection of a prior swing. For example, the pullback zone came in at the $60.52-$60.88 area. The symmetry projection came in at $60.84.

I will tend to focus on the retracement that overlaps this projection for an entry. Note that the prior swing down was $0.67. Comparing this to the next swing down you can see that the decline was very similar at 65 cents. The initial stop on this trade could have been placed below the $60.25 low. Since it was considered a daytrade entry, you would want to be out of the position by the end of the day. Now let's take a look at a trigger you can use if you want to consider an entry for a swing trade on the 30-minute chart.

 

Source: Dynamic Trader

 

On the 30-minute chart below, we are looking for the same thing we saw on the 5-minute chart. We want to see a prior swing high taken out, along with the moving average crossover. That is always the initial trigger. A secondary entry would be buying the pullback after the initial trigger. Since we already saw the initial trigger, you can now look at an entry in JOY anywhere between the $61.20-$85 area. The risk on the trade can be defined either below the $60.84 swing low, or below the $60.25 swing low. Again, define you risk according to your own comfort levels.

Bottom line, I like JOY against the recent low the stock made on Feb. 7. I am looking at this current pullback for an entry. My maximum risk is defined below the $60.25 swing low.

 

Source: Dynamic Trader

 

Last but not least, I want to mention what I would consider a super conservative trigger for an entry. This trigger would be on the daily chart when the 5 EMA crosses above the 13 EMA. Now if you use this as a trigger, the way to play it would be to let the crossover occur on the daily, and then enter on a pullback on a lower time frame chart where the risk you would be taking is reasonable. Take your cue from how I set up the 30-minute chart. Use common sense when making these decisions.

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