Use This Disciplined Approach to Trade Nvidia Stock

Nvidia is expected to report Q3 results on November 15.
By Stephen Guilfoyle ,

First off, I have not yet been flat Nvidia (NVDA) - Get Report , at least not for a long time. One thing that I always try to stress to readers is the need to create target prices and panic points for every position, and then act in some way when those levels are reached. Coming into this recent bout of market turbulence, my target price for NVDA was $290. The industry average target was $294. My panic point was $240.

Take a look at the chart. Right away, you'll see the tendency of Nvidia to rebound at retracement levels of 61.8%. Throughout the current calendar year, this pattern has not been tested to any significance in this direction. It had always been the retracement of a rally prior to this.

I did not trade the name perfectly, but by taking portions of the long off as the stock passed $290 to the upside, and within a couple of weeks, $240 to the downside, a considerable percentage of the risk was extracted as capital that can now be redeployed. That move has already been initiated. The position, however, is still too small at this point, if that was indeed the bottom. I found it difficult to be aggressive toward those lows, though I was lucky enough to add one tranche in the $189s.

Why am I telling you all this? Simple. I can't make this necessity any clearer to retail traders. I don't just have a mental target. I have too many open positions at all times for that. I have a notebook that I update every Sunday night. My target prices and panic points are written down, and that helps with self-enforcement. Only we can save ourselves.

Key Targets on Nvidia (NVDA)

Target Price: $245 (down from $290)

Panic Point: $180 (down from $240)

Wall Street Average Target Price: Still $290, according to TipRanks.

Nvidia is expected to report Q3 results on November 15.

Note: I would advise retail traders, who might be unsure of their level for risk tolerance, against the sale of out-of-the-money puts in this name, as this equity moves fast, and such a move in these markets could easily leave the trader on the hook at disadvantageous prices.

(A longer version of this column appeared at 7:40 a.m. ET on Real Money, our premium site for active traders. Click here to get great columns like this from Stephen "Sarge" Guilfoyle, Jim Cramer and other experts throughout the market day.)

At the time of publication, Stephen Guilfoyle was Long NVDA, Short NVDA put options.

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