Monster Beverage Corporation is all over the news since FDA began investigating of five deaths associated with Monster energy drink yesterday. The breaking news resulted to a 14.23% decline of the Monster stock during Monday’s trading session. However MNST stock had barely moved in the first 4 hours of trading.
Day traders should have spotted a trading range between $52.90 and $53.40 by then. The next 5 minutes though signaled the beginning of a strong downtrend. Note that although the range’s bottom failed, another price level ($52.50) might have provided support during the predicted downtrend.
The next candlestick that was printed on the 2-min Monster stock chart was quite impressive, penetrating the support level and going all the way down to $52.35. When that candlestick was completed, I would short sell MNST stock ($52.50), setting a stop loss at the last candlestick’s high ($52.90) and risking 40 cents per share. It was more than obvious that breaking stock news was the reason for the birth of the new trend at the intraday chart. Also note the volume’s substantial increase.
However, speed is paramount in day trading. There’s no time to over-analyze charts and contemplate your next trade. Monster stock lost 2 dollars per share in the next 2 minutes! If I had been short MNST on the previous candlestick’s close, my trade would offer a 5-1 reward-to-risk ratio already (2 dollars-to-40c).
What would my exit strategy be if I had been day trading Monster stock? As soon as a new high was printed, I would trade out. That new high ($49.50) happened 18 minutes later. 9 candlesticks were printed since the entry point. Total profit of this trade would have been $3 per share while the risk would have been just 40c.
Another exit strategy could have been to trade out when a resistance level failed. That happened at 15:30 ($46.50), half an hour before the market’s closing bell. In case day traders would have opted for that exit strategy, profits would double up (6 dollars per share).
The intraday Monster stock price decline was a perfect example of how much money you can make in stock trading and specifically in day trading. In addition, the MNST stock chart shows how breaking news affects stock prices when the stock market is open. Next time you hear of important news, don’t forget to load some intraday stock charts and take advantage of the momentum.