In the Sept. 29 issue of Traders Daily Direction, I told you about my trade in AMC Entertainment Holdings, Inc. (AMC).
This is the “Mother of all Meme Stocks” that I first brought to your attention back on Aug. 19.
The stock made a massive run in early 2021, surging over 3,000% from the January low to the June peak.
But shares then started to consolidate in July and moved sideways through early August.
This gave me a low-risk entry point to start a small position in the shares.
The stock started to trade higher after my initial entry and got into the $50 range briefly, but I didn’t get the follow-through I was looking for.
However, I continued to stalk a new entry on AMC.
I told you that if price continued to tighten and volume stayed low, I would be looking to buy on a fresh breakout near the $42 area.
I even drew a chart of what I was hoping to see. It looked like this:
Now, fast-forward to today, and this is how the chart has developed…
As I hoped, AMC’s price action has tightened significantly.
This “compression” is being accompanied by a significant drop in volume — another telltale sign that sellers are drying up and a breakout could be imminent.
Trading a Volatile Stock
Now, AMC is a volatile stock. It can move 30% or more in a single session.
Therefore, we need to spot the upside turn as early as possible in order to find a low-risk entry point.
At this point, here’s how I’m looking to play it…
My entry trigger will be a move above the Oct. 8 high of $38.78. This means placing a buy stop order at $38.80.
Once filled, I will place a sell stop order at $33.70.
So, if AMC takes out the September low, I will exit the trade automatically.
This equates to a total risk of 13% on the trade.
For aggressive traders that want to play it tighter, you could place your stop beneath last week’s low at $35.60.
This would bring your risk down to 8.25%.
However, in that scenario, you run the risk of choking off the trade too quickly if it doesn’t shoot up right out of the gate.
I’ll continue to update you on AMC as the trade progresses, so be sure to check back soon.
Embrace the Surge,
Editor, Traders Daily Direction