Trying to figure out your trade on Amazon (AMZN)? Here’s how I’m doing it. (July 11, 2018)

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I want to look at Amazon ( NASDAQ: AMZN ) today. Members, in the Strategy Session I am talking a lot about entries and the difference between making a decision to act and then actually acting. There are two time frames, decision time frame and action time frame. You have to make sure everything lines up and one of the things that I am talking about is essentially being able to defend your trade. Like, why are you doing what you are doing? Can you articulate it without getting laughed at by somebody else?

If you start using the word “think” or you start using the word “hope” or “I kind of think this” or well, “I am going to take a shot”. That kind of stuff, that is laughable stuff, those are punch lines, you just know that you are actually the joke so you can’t do that. You have to know exactly why you are doing what you are doing. Now, you may be wrong and you may lose money but if you don’t know, listen to me, “I’m giving you pearls”, If you don’t know why you did what you did then how are you going to know whether you were wrong? You don’t even know what the heck you did. You just snapped at a shiny object and you either made money or you lost money.

If you made money you’re foolishly thinking that that was a good trade. It’s not. It was a trade that you made money on. Your good trade could have been the trade that you lost money on because the stock just didn’t work out. It just kind of didn’t do what you thought it was going to do, not what you had hoped it would do. I hope that every stock that I buy goes straight up to infinity; it has never happened but hope springs eternal. A stock does what you think it is going to do based on your analysis, that’s when you are trading. But you have to be able to articulate it.

So let me tell you what I am doing with Amazon ( NASDAQ: AMZN ). I have been in this for a while, I trade this with call options, which is a little bit like “dancing with the devil” but a guy has got to have his fun someway. I am still long, I am long the August 1750.00s, exactly what I am long. They are doing pretty well. I have been shaken kind of in and out a few times recently but this is my theory, I will describe it to you. I have an 1870.00 price target and here is basically how I get it. These big stocks like this do tend to trade very technically and so here is what I do: I look at this as this was the bottom, this was the top right here, this level here so we have got 250 points. So to just measure this, this is cocktail napkin stuff, 250 points from the bottom up to the top here. Let’s go another 250, that takes us magically to about this level, 1870.00. That’s one way to get to 1870.00; just this distance from the bottom of the triangle to the top. Add it again and you are good to go.

The other way is the June range, from the top here, clear down to here. That is $100.00, so now we take $100.00 here at 1763.00, push it up here; $100.00 more and what do we have? Well, we have 1863.00, close enough to 1870.00. So in a couple different ways, based on an objective measurement, I don’t know if it is going to turn out to be correct but I do use these types of measured moves so that I can assess kind of a risk/reward on the trade.

I am looking at Amazon ( NASDAQ: AMZN ) and I see this thing, generally speaking, running like this, that is about when I am looking for 1870.00. It is technical but it isn’t pretty. It is not precise, it is not robust, it is just using simple math, drawing a few lines. This is my trade right here and I am hoping to make a ton of money.

However, if the stock reverses and I get stopped out and I lose, it’s not going to be an ego thing for me. I took my shot. I knew why I was doing it and the trade either works and makes me money or it doesn’t. Let’s say it doesn’t, then I am going to learn that lesson and say, “You know what? Maybe we need to kind of scrap the way I am measuring these stocks and look for another methodology.” The idea is this in this video: You need to have a plan for why you are doing what you are doing. If you don’t have a plan you don’t have a trade.

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One comment

  1. avatar drotars says:

    Dan,
    great video as always. I am somewhat miffed why you never incorporate upcoming events (Prime Day – the 16th, and earnings) into your calculations. I follow the historical on stock moves before those events and find them to be a catalyst as well. Your insights to this would be greatly appreciated.

    drotar

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