Wednesday, January 5, 2011

Watchlist - CSTR (short)

I have a stop-order to short CSTR at 54.84 this morning so I thought I would most a more detailed picture of what I see.  I chose the 54.84 level because that is one penny under the low of yesterday.

We can see resistance at the 54.94 level (purple line) and a break of this would move it into the gap.  The red dotted line above is where my stop loss would go.  It is an area that shows good support/resistance so a break of this and you know your position isn't going to work out.  The risk here is about 5%.  The reward part is the area in green as we could see a typical gap fill on this one.  There is basically empty air for this stock to fall all the way down to prebreakout levels.  If it were to take over the green area you are look at a gain of 12.5%.  This setup has a risk/reward of 0.4 (anything under .1 is better than a 1/1 risk/reward).  Basically it is 1 risk to 2.5 reward.  This is an ideal setup as you always look to gain more than you risk to make the deal better.

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