Mastering the Art of Trading Around: A GameStop Case Study

Mastering the Art of Trading Around: A GameStop Case Study

In the thrilling world of stock trading, the concept of ‘trading around’ has gained significant attention, especially in volatile stocks like GameStop (NYSE: GME). Trading around involves establishing and managing a core position in a particular stock, often based on the exhilarating price action and market sentiment. In this article, we’ll delve into the intricacies of trading around, using GameStop as a case study, and explore how traders can leverage the pulse-pounding price action to make informed decisions. Try us out today.

The GameStop Saga: GameStop has been a hot topic in the trading community, with its stock experiencing wild swings driven by factors such as the “Roan Kitty” memes and the company’s strategic moves. As a trader, you must base your opinion on price action rather than getting swept up in headlines, memes, or tweets.

Establishing a Position: Following the price action is essential when establishing a position in a stock like GameStop. In the case study discussed in the video, the trader established a position during a pullback after the initial euphoric gap-up. This decision was based on the stock’s price action and the anticipation of future catalysts, such as the CEO’s potential actions and upcoming earnings.

Managing the Position: Once a position is established, it becomes crucial. In the GameStop example, the trader faced a challenging situation when the CEO unexpectedly exercised his right to drop 75 million shares on the market overnight. This led to a significant gap in the stock price. The trader initially held onto the position, hoping for a bounce, but eventually had to cut losses when the price continued to make new lows.

Trading around volatile stocks like GameStop can be a powerful learning experience. In the case study, the trader acknowledged that going for the ‘jugular’ and succumbing to FOMO (fear of missing out) was not the best approach. It’s important to learn from such experiences and adjust future trading strategies accordingly, empowering you to make better decisions in the future.

Reestablishing a Position: After cutting losses, the trader sought opportunities to reestablish a position in GameStop. Instead of chasing highs, the focus was buying pullbacks, gap fills, and using moving averages as guides. By closely monitoring the 15-minute price action, the trader identified key support and resistance levels, such as the 10-period simple moving average (SMA).

The Importance of Price Action: Price action is emphasized throughout the case study. Rather than getting married to a specific price target, traders should embrace the adaptability to changing market conditions. In the example, the trader initially hoped for a pullback to $20 but adjusted the plan when the price action suggested otherwise. By paying attention to pivots, reclaiming moving averages, and gap fills, traders can make more informed decisions, instilling a sense of confidence and preparedness.

Trading around volatile stocks like GameStop requires a disciplined approach based on price action. By establishing positions during pullbacks, managing risk, learning from mistakes, and adapting to changing market conditions, traders can navigate the complexities of trading. Remember to focus on key price levels, moving averages, and pivots rather than getting swayed by external noise. With practice and experience, mastering the art of trading around can be a valuable skill in your trading arsenal.

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