$RIMM in Play

Coming into today Research in Motion(RIMM) was on my radar.  Some news had come out in the pre-market about the pricing of its tablet computer.  The news basically said that the tablet would be priced below $500 which would make it a cheaper alternative to the iPad.  The pre-market wasn’t showing much in the way of price action but I had RIMM on my watch list to see how it would react to this news. 

Immediately on the open RIMM showed some strength, basically trending higher for a $1.50.  The first level I was watching as potential resistance was 56.60 which was the highs from 11/08.  We broke this level in the first 15 minutes but this was where your skills as a trader must come in.  First of all the stock had just run for over a point so odds are pullback or sideways consolidation was to be expected.  Second the open in this market lately has been a chop zone with a lot of volatile sideways action.  For about 2 months now, in our morning meetings at Keystone, we have talked about the better opportunities presenting themselves after the open around 10-10:30am. 

After the open I knew I wanted to get involved in RIMM.  The market was showing weakness especially in the tech sector and RIMM was staying relatively strong.  It was only a matter of waiting for RIMM to consolidate and finding a good area to manage risk.  I entered during the hour-long consolidation pattern and added on to the trade when it broke the high of 56.81. 

As you can see for the rest of the day it was just a matter of how much you made on this trade.  Personally I missed about .70 in middle of this trade because I covered the entire position around the resistance at 58.00 instead of holding a piece.  I got back in on the next break out but left some money on the table.  Coming into tomorrow I am expecting RIMM to still be in play as this is usually a stock that trends for a few days after a news related break out.  The 200ma is at 59.50 but above that could see a trend into the 61-63 area.  Best of luck in your trading and have a great night. 

Kyle

$SPY in a tough trading area

Trading the $SPY for the last 7  days long has been relatively easy. Technically speaking it is text book. Large range days with good volume on rallies. Significantly lighter volume on days with small price ranges.

We rallied into the 200SMA on the daily chart last week @$111.78 and paused, with everyone looking at the same charts this created a lot of indecision. (again, perfect technical structure)

Keystone traders went home Friday with a game plan with two scenarios; what do I trade if the 200SMA holds as resistance and what do I trade if buyers some back strong and this significant level gets taken out?

Based on the light volume pause for the better part of 3 days (after the violent momentum rally) we expected a bullish day (this was not a guess it is technical analysis 101). However if we did get the bullish stampede there was an even bigger level to be aware of in the SPY at just over $113.

This $113 is the level that excites the sellers to come off the sidelines, it has been the trigger since just after the flash crash in May.

Now here is the situation you are faced with as a trader: long (being a buyer) is the correct trade, but there is limited upside potential to the trade taking into consideration this mornings gap to the upside.

What do you do? This is the zone where a lot of money is lost. The buying ideas are still valid but have less profit potential but there are not that many solid short sale scenarios.

I will ask again, what do you do?

Most inexperienced traders who feel the longs are not following through will put out short sale probes or actually in allocate capital to a full short sale position (because longs seem to have used up all their energy).

The correct play here is to be patient on the longs for new levels or better risk reward (from lower levels, which would be a flag on a daily chart) or do nothing. Doing nothing is the hardest thing to do.

Remember, not wanting to be long is not necessarily a reason to be a short seller.

$HPQ- Do You Know What an “A” Trade Looks Like??

Our main job as traders is to take advantage of the opportunities the market provides us everyday.  We take these opportunities and turn them into trades where we must manage the risk/reward associated with each idea.  It is up to us as traders to risk more on our really good ideas and lower our risk exposure when the probabilities are not in our favor.  Today Hewlett-Packard(HPQ) provided a great example of a trade where it was our responsibility to trade it with some size and take on more risk because it was an “A” setup. 

For the past few weeks HPQ has been in the news and has been trading with increased volume.  After the gap down earlier in the month HPQ has been showing relative weakness compared to the rest of the market.  Going into the open today we knew that 40 was an important intraday level to watch.  We opened at this level and it immediately held and we started to trade lower.  I didn’t get in on the open so I was looking for an offer to hold and sellers to step in.  This happened at 39.85 as the offer was getting hit and HPQ wouldn’t trade higher.  A print went off for 400000 shares and the bids dropped fast to 39.80.  The bid started to get hit so I got in, knowing that I would add size to this trade if the offers held below the low of the day.  I added to the trade below 39.70 and was able to get a point from my core position scaling out some of the trade at 39.25. 

The main thing I need to take from this trade was how I felt and the conviction I had in the idea as it was playing out.  I knew what I needed to see, to know the idea was playing out.  I was able to hold most of my core position for the entire move because the trade was acting like a weak stock should.  As traders we should be looking for more of these “A” setups as they allow us to trade with size and a stronger conviction.  These are the types of trades which can make your day, which in this market can make your week.  Best of luck tomorrow and have a great night. 

Kyle

$RIMM: Trading Around an Idea

Everyday the market offers us an array of ideas.  It is up to us as traders to organize these ideas, make them our own, and turn them into trades we can understand.  Now just because you have an idea doesn’t mean you automatically get paid.  You must trade around this idea, find scenarios where you can manage risk, and take profits when you think the trade is finished.  As I mentioned on twitter this morning (follow us here) my best idea this morning was shorting RIMM below 53. 

In the pre-market this morning RIMM was trading below the 53 level.  We were going to gap down so I quickly formulated a few scenarios.  We could trade up on the open where I would look to get involved if I noticed some selling below the 53 level.  We could trade flat on the open where I would look for volume and selling on the tape so I could find a level to manage risk.  Or we could immediately trade down to the next support level of 52.  Because we had support levels so close to where the stock was going to open I told myself the only trades I would put size on were the first 2 scenarios.  If the third scenario happened I would get involved with smaller share sizes because I was chasing the move a bit. 

On the open we basically traded to the support level of 52 then popped up to the 52.50 level and paused for a bit.  I noticed selling being done at 52.60 so I put the trade on there, knowing I would be getting out above the high of the day which was 52.80.  I got stopped out of this trade as we broke the .60 level and traded up very quickly.  Obviously looking back on it I should have let the stock breathe as we quickly traded down to my original entry but I formulated a plan so it is my job to follow it.  I should have scaled out of my trade immediately above .60 and held the rest to the figure, which I knew was a strong level.  Oh well now it was time to plan my reentry. 

RIMM traded down to the support level of 52 very quickly so my next plan was to look for selling below this level.  We traded below 52 but kept popping above it.  Finally a little after 10 I got involved when we held the offer at 52.  RIMM traded quickly down below 51.68 and I took some profits around .50.  I was given the opportunity to add back in when we consolidated around this level and I took the entire position off when we traded through 51 then popped back above it. 

I think overall I did a good job planning this trade and sticking to what I had planned.  Going over this trade I should have been more patient with my original entry and I should have put more size on when we consolidated around the 51.70 level.  But I think I did a job reentering after being stopped out and of holding this trade for the bigger move.  After closing weak today I will be looking for more follow through as the next level of support is 47.50.  Best of luck tomorrow. 

Kyle

Scenario Building

As I posted a while back planning for all scenarios in this market is a must.  If you aren’t ready for the unexpected, when it happens you won’t know what to do and will be prone to making a mistake.  But to take this concept a little further, are you planning for all scenarios in each individual trade you take. 

When you put on a trade are you the type of trader who when executed just puts in a stop and hopes for the best?  If you get stopped do you get discouraged and get mad when the stock reverses back into the direction you thought?  The reason that most people don’t make money isn’t for a lack of ideas, it is the planning of these ideas where most traders go wrong.  Most traders have no problem planning for what they are going to do when the stock trades in their favor and think they are planning for their downside by just putting a stop in the system.  What you need to be doing is coming up with a detailed game plan for what you are going to do if the stock trades against you.  Yes you should have a price where if the stock trades there you are exiting the trade, but you should have a detailed plan for how you are going to exit.  Are you going to bid/offer to get out or are you going to just hit out of the trade?  Are you going to scale out or take everything off at once?  If you are bidding/offering, are you prepared for the trade to keep going against you and where do you hit out?  If the stock pauses after you get out and trades back in the direction you thought are you reentering?  If the stock trades to your stop price but doesn’t print are you still exiting.  These are all things that need to be figured out before you even execute a trade. 

As I was reading the great new book by Mike Bellafiore, One Good Trade-Inside the Highly Competitive World of Proprietary Trading, I was reading one particular section where I realized I wasn’t planning my exits well enough.  Now I’m not the type of trader who uses stops, I generally am disciplined enough to bang out of a stock when it hits my price.  Also I know with the algos these days that I need to see volume around my stop price and to make sure it stays there in order to exit the trade.  But when I was reading this great book I realized I am not planning enough.  Mike has one section where he presents an example of the if/then statements that his traders have for each trade.  There was about 30 if/then statements ranging for what he needs to see to hold on to the trade, to what he is going to do if the stock blows through his stop price. 

I know one of my weaknesses is when a stock I am trading or the markets reverse their direction and explode.  This happened to me Friday in Las Vegas Sands(LVS) and to our firm Friday afternoon in the markets.  I paused when LVS hit the high of the and reversed because I was only thinking about my profit target.  I didn’t plan for the stock ripping against me so when it happened I was unprepared.  I think the main reason that we are sometimes caught off guard is that we aren’t planning for every single scenario.  If you know what you are going to do then you will just react instead of wondering what is happening.  Best of luck in the coming week and have a great weekend. 

Kyle