The 3.7-to-1 risk to reward ratio that was highlighted in Young Guns Taking Off was met yesterday as the stock is now 40% higher than my original entry point (only 11 trading days back). Now is the time to guarantee at least a 30% gain by placing a hard physical stop at $31.89 or near $32. The stock still has long term potential based on its recent price explosion and institutional sponsorship but a hard stop is my idea of comfort while sleeping. Our target was met and my goal was reached so I can’t be greedy! Remember this post: Don’t Be Greedy
Below is an insert from the June 20th Case Study:
Potential Trade Set-up:
The Ideal setup was last Wednesday at the moving average when I started coverage!
Ideal Entry area: $23 – $25 ($24.55)
Risk a maximum of 1% of portfolio (half of 1% would be better for this speculative play)
Set a stop loss above $22.00 (7-10% from entry – must be below 50-d moving average)
Target of $34+ based on recent swing action (stock is young for ideal target)
Risk to reward has a potential of 3.7-to-1 based on exact entry ($24.55) and stop of $22.
This was the original blog post that highlighted JASO at $24.55:
Fresh IPO Ideas
JASO – JA Solar Holdings, Co. Ltd. – $24.55
Earnings Analysis:
$0.41 – Last Year Primary EPS
$1.00 – Current Year Mean Primary Estimate
$1.41 – Mean Primary Estimate — Next Year
30.00% 5-YEAR GROWTH MEAN EPS
Institutional Analysis:
Total Held by Institutions: 87
Money Market: 68
Mutual Fund: 18
Other: 1
Shares Held: 15.16 mil
Shares Held Previous Period: 1.85 mil
Shares Bought: 13.51 mil
Shares Sold: 0.19 mil
Value of Shares Bought: $314.6 mil
Value of Shares Sold: $4.58 mil
Shares bought versus shares sold is what really caught my attention! That is institutional sponsorship at its best. The risk-to-reward was excellent and quickly achieved by the powerful smart-money support.
Curious as to how you have a Money Market fund owning stock…
Plus, did you sell into today’s move? And is your stop for all your shares or partial sell?
Seems to me, with a longer term high probability that this stock moves higher why you would lock in some gains now and have some left…rather than just (assuming) putting on a hard stop for 100% of your position?
I don’t have a money market account; not sure if I follow what you are saying. Did I type something that doesn’t make sense?
I didn’t sell but my stop is set. It is for my entire position. I’ll accumulate more shares in the future if the stock corrects or consolidates. My goal for this trade was $34 so I am not concerned with the longer term move. it was a short term swing trade. Not a longer term trend trade.
Hope this helps.
Congrat on your pick!!
Did you take positions on all four stocks you recommended?
Hi Chris,
Thank you for all the info on this site. I have been browsing it for about a month now and I have learned quite a bit. I have especially enjoyed your posts on expectancy and position sizing. One question I have is how do you estimate the reward aspect of the risk/reward ratio before you enter the trade? Was there a method you used to determine that the price target was $34 or was it an educated guess based on passed experience?
Jason,
I own JASO and SMOD at this time. I would like to enter the other two but haven’t found the correct risk/reward setup.
Ryan,
Risk/reward is tough on young IPOs because the lack of technical analysis and fundamental data limits the “educated guess”. In this case with JASO, I used a swing method described in Stan Weinstein’s book. It gave me a target of $34 but I will say that much of it was an educated guess based ont he method. Nothing is set in stone (it’s an artful method). I have his book listed on my stock market book’s page. I am sure you can find a cheap copy on Amazon.
you just have JASO held by a money market fund.
Ok, I was just trying to see how you trade a position.