Thanks to our friends over at www.thebullogic.com for the following guest post "Trade of the Week"
Meru Networks Inc. (MERU) has once again made it to the top of our watchlist. We at Bullogic scan the (MERU) chart regularly, and have traded it several times in the past 6 months. We suggest to all of our students and other newer traders to keep MERU in their daily chart scans and check it regularly, because it is a very clean chart that is not full of gaps. It offers frequent easy to trade high reward/low risk setups, (We left lines on the chart so you can see these setups for yourself).
It is a small cap stock with the volatility to make constantly large moves (both Bull & Bear) +5.00% move is normal in MERU. Judging by it's OBV speculators & long term traders are holding onto this stock. To sum up MERU is an excellent stock to watch for easy setups in short time frames on a regular basis.
Today MERU is giving us an almost textbook Cup & Handle Pattern to trade. First off we will buy the break of the cup & handle @ $4.31. We will look to the 50 day moving average resistance @ $5.12 as our first target, the resistance @ $ 5.50 as our second target, and $6.00 as our third target. We will use these targets to either close or scale out of the trade (take our profits) depending on how the trade is progressing.
Lastly let's consider our stop loss, this is where we figure out our risk/reward ratio to see if the trade is worth entering (1:1 = no trade, 1:1.5 = trade only with high probability setup, 1:2+ = trade away). We put our stop under a support level that we feel will hold the stock price up if it starts falling during normal daily spreads, thus not prematurely exiting us from the trade with a loss. This trade has a lot of support levels holding it up.
- First up is the weaker inner day support @ $4.17 for a risk / reward ratio of 1 to 5.79. That means we risk $0.14 per share for a potential reward of $0.81 per share.
- Next is the $4.00 dollar support level with stop @ $3.99 risk / reward ratio 1 to 2.53.
- A stop under the 20 day moving average @ $3.88 yields 1 to 1.88 risk/reward.
- And last but not least is the strongest support the 200 day moving average with a stop @ $3.70 for a risk / reward of 1 to 1.33.
We will use the $4.17 stop with the 5.79 return that gives MERU +3% wiggle room for price fluctuation.
TRADE SMART WIN SMART
"Bullogic is armed with one mission, “Trade Smart Win Smart”. Our goal is to expand and spread our trading knowledge to our readers. By specializing in day, swing, and option trading, we bring a wide variety of financial information to our readers. Through greater knowledge we can all achieve greater profits."