ILMN Providing An Illuminating Setup

I jumped into Illumina (ILMN) this morning after posting a chart this morning showing the potential for either a breakout/breakdown in the stock. I wasn’t sure which way it would play out because price action up until this morning’s open had been nicely contained with the ‘box’. 

Within the first 30 minutes of trading, ILMN started breaking down nicely and at $50.50 I decided to get short on the stock. As I was writing this post it broke down so fast, that I covered it at $48.07 for a 4.8% gain. 

Now I try to stay away from posts the come across as chest thumping or acting like I’m bragging for my own personal gain. Instead, it’s  better to dissect this trade, since I am unexpectedly out of this trade so fast, and fortunately with a solid gain. 

First off, I manage my short positions much differently than I do my long positions, and in a market where we are extremely oversold, holding out in hope that the stock continues to plummet is ill-advised. Instead, once I got about 5% in gains, I booked the trade and moved on. 

I’m actually pretty systematic about taking average gains of 4-6% when shorting stocks. Personally, I don’t like to hold on longer, because I am then often times risking being squeezed out of a position, and since a stock can only go to zero, there is a natural ceiling that prevents me from wanting to just gradually tighten the stop-loss. Instead I like to sell my positions into weakness and take those gains when I had them. 

Going short versus going long and how I manage the trades are completely different. The gains to the downside when shorting can come extremely fast, but they can vanish just as quickly. Long setups give you the opportunity to manage them for a longer duration and gradually increase the stop-loss as gains are made. 

Here’s the ILMN setup and how it turned out. 

The Initial breakdown on the ILMN chart: