Tonto Trade – NTES

The 5min chart below shows a very nice price contraction as candles get narrower and narrower during the first trading hour. Also, there is a nice contraction in volume. This configuration, as Jamie explains in detail, has a coiled spring effect and leads to explosive moves (volume expansion and price expansion). Which is what happened with NTES in the following bars.


The daily chart below shows that the $21 area acted as a resistance level for 6 days around 12/08/08


Since the ORH was exactly at $21 and NTES was not consolidating next to the PP, it was clear to me that NTES had little chance to initially move beyond that line. So I took the trade knowing that it would likely be just a scalp. NTES rallied right away to the ORH, where I took a partial. I decided to stay in the trade because NTES, like BIDU, is one of the those companies (both based in China) that in the last year proved that it can move in ways that defy any logic or analysis. Also, there was a chance that NTES would take the PP and move beyond it later on. However, NTES behaved as expected and failed to break that major resistance point. My entry and exits are marked in the 15 min chart (below). This was not a great trade but certainly a nice way to keep learning.