Think your daily skills can’t reshape your financial future? Think again. Dive into my analytical journey with an Amazon stock buy.
It was 7th May 2024, a seemingly ordinary day, but one that marked a significant financial decision for me—I bought shares of Amazon (AMZN) at $189.00 each. The decision wasn’t made on a whim. I had my eyes on a few indicators that promised some exciting potential. Here’s a breakdown:
- Bought at $189.00: Right when it seemed the stock was rebounding from the EMA 21 line, a technical indicator I’ve come to trust.
- Stop Loss at $179.97: To guard my investment against any unexpected downturns.
And what were my expectations? Was I hoping for a quick gain, or was it a long-term play?
Expectations vs. Reality
- Profit Target: I set my sights on $226.80, calculating a potential profit of 19.89%.
- Position Risk: With a risk of 4.75% on the position and a minimal 0.41% to my net liquidity, the numbers made sense.
But, how did I manage the risk, and what was my backup plan?
Managing the Risk
- Risk to Reward Ratio: At 0.24, it told me I was on the conservative side, something I’m usually not known for!
- Market Outlook: It was all green with a confirmed uptrend.
And as we look ahead, what else was on my radar to ensure this wasn’t just another roll of the dice?
The Technical Playground
- RS (Relative Strength) Rating of 90: AMZN was showing strong performance against the market.
- Volume U/D Ratio of 1.3: Indicating more buying than selling, a positive signal for my recent acquisition.
What does this all mean for you, the reader? Why should you care about these details?
Why This Matters
Each trade tells a story, and here’s why mine might intrigue you:
- Learning from the Patterns: Understanding the significance of buying near the EMA 21 and setting realistic profit targets can be crucial for any trading strategy.
- Risk Management: Seeing how stop losses and risk evaluations are put into practice can demystify much of stock trading.
So, was it the right move? Did the stock perform as expected, or was there a twist in the tale?
details at a glance
Explanations for the Drawing
The upward purple arrow shows where I bought the stock. The downward purple arrow shows where I sold it.
Green Line 21-day exponential moving average line (see EMA 21 below)
Red Line 50-day simple moving average line (see SMA 50 below)
Black Line 200-day simple moving average line (see SMA 200 below)
summary
- Underlying: AMZN
- Date: 7 May 2024
- Underlying Price: $189.00
- Stop Loss: $179.97
- Position Risk, %: 4.75%
- Position Risk to NL, %: 0.41%
- Profit Target: $226.80
- Potential Profit (Position), %: 19.89%
- Risk to Reward Ratio: 0.24
- Market Outlook: Confirmed uptrend
- RS Rating: 90
- RS Line Trend (U/N/D): Upward
- Industry Rank (X / 197): 91
- Volume U/D Ratio: 1.3
- Institutional Ownership Trend (U/N/D): Upward
- Position Size, %: 8.60%
- “Why did I open this trade at that point?”: Price rose after earnings which is a good sign.
- Was it an ideal buy?: No. The price wasn’t coming out of a base.
- Remarks: At the time of buying the stock, the industry rank of 91 out of 197 was too low, indicating a lower performer in its industry. However, given that it’s AMZN, this reduces some risk.
terms and definitions
Ever felt like trading lingo was designed just to keep amateurs out of the loop? Let’s simplify a couple of terms:
EMA 21 Calculates the 21-period exponential moving average, highlighting short-term trends.
SMA 50 Averages the price over 50 periods, showing medium-term trends without overemphasizing recent data.
SMA 200 Averages the price over 200 periods, revealing long-term trends by treating all data equally.
Pivot price is the optimal buy point of a stock is defined as the moment it transitions from a stable basing area or chart pattern and begins to achieve new highs in price.
Industry Rank Investor’s Business Daily’s system that ranks industries 1 to 197 based on performance. It guides us in CAN SLIM TRADING towards leading sectors.
U/D Ratio Measures stocks closing up versus down. A ratio above 1.0 indicates bullish sentiment, important in CAN SLIM TRADING.
RS Rating Ranks a stock’s performance on a 1 to 99 scale. I look for at least 85, showing strong momentum and growth potential.
RS Line Compares stock price to the market, plotted as a ratio. We seek an uptrend, indicating outperformance and strong momentum.
Volatility Measures how much a security’s price fluctuates over time. High volatility means large price changes, indicating risk and potential reward.
Institutional Ownership Trend indicates whether the stock is under accumulation or distribution by the institutions.
EPS (Earnings Per Share): A financial metric calculated by dividing a company’s net profit by the number of its outstanding shares. It indicates the amount of profit attributed to each share of stock, serving as a key indicator of a company’s profitability.
Stage 1: Basing or Bottoming Stage
Definition: A period following a stock’s decline where it starts moving sideways, forming a base. This stage signifies the easing of downward pressure and the beginning of stabilization, indicating that the stock is not in an uptrend yet but is preparing for potential future growth.
Stage 2: Advancing or Uptrend Stage
Definition: The phase in which a stock breaks out of its base on significant volume, indicating a strong buying interest and the initiation of a new uptrend. This stage is considered the most opportune time for investors to purchase the stock, as it is expected to achieve substantial gains.
Stage 3: Top or Peaking Stage
Definition: A stage characterized by the stock beginning to exhibit signs of losing momentum after its upward movement. The stock may start to move sideways with increased volatility compared to Stage 1. This suggests the stock might be reaching its peak, and the existing uptrend could be weakening.
Stage 4: Declining or Downtrend Stage
Definition: This final stage occurs when the stock breaks down from its Stage 3 pattern and enters into a downtrend, marked by a sequence of lower lows and lower highs. It signifies that selling pressure has surpassed buying interest, usually serving as a signal for investors to sell the stock to mitigate further losses.
Final Thoughts
Buying AMZN was not just about hoping for profits. It was about strategic planning based on technical indicators and market sentiment. While it wasn’t an “ideal buy” due to not emerging from a base, the subsequent rise in price post-earnings confirmed that the decision had some solid ground.
And what could be next for AMZN? Stick around, and maybe you’ll get to see how this story unfolds. Could this be your cue to look at your investment strategy through a new lens?
By the way, if you have any thoughts or questions about trading or investing, fill out the form here and I’ll get back to you.
