How Does an Active Trader Handle This Market?

Ever since the “Flash crash” on May 6th, the markets have gyrated like a rubber band – no doubt fooling the “retail investor,” who typically buys high and sells low, ultimately chasing each and every move. The buy and hold strategy of years past has proven to be unsuccessful. In these markets, where some say as high as 80% of trading is computer driven (algo trading), it is more pertinent than ever to become more of an “active trader.”

At Keystone Trading, 85% of our trading is done on an intra-day basis. In other words, the positions are closed by 4pm EDT. The other 15% of our trades are in a 1-3 day time frame. Put simply, we are profiting from the short term moves, rather than sitting back and watching profits turn into losses. We are consistently monitoring order flow and looking for “high probability” situations.

As an active trader, we rely heavily on technical analysis rather than company fundamentals. Las Vegas Sands (NYSE: LVS), for example, happens to be one of the stocks that we watch closely and trade aggressively. Technically speaking, the stock has been a beast since early March, when it was trading at around $16.50 a share. It traded as high as 26.55 before the flash crash, only to regain steam after finding support at $19 and make a new high of $27.85 on June 21st. However, once it failed to hold the support level at $25.50, we quickly sold out of our long positions and shorted the stock, setting our stop at $26.59 with a profit target of $22.73. In other words, we were willing to risk $1.09 to make $2.77 on the trade. LVS hit our price target today and we covered for a nice profit.

Do all of our trades work out this well? Of course not. But the important point is that we always calculate our risk-reward dynamic before we enter a trade. Typically, we look for at least a 2:1 ratio. The key element to an active trader is to be constantly assessing probabilities and market conditions and only to take trades when these factors line up. We never trade for the sake of trading.
As a proprietary trading firm Keystone Trading Group seeks partnerships with both new and experienced traders.

Our traders trade exclusively for the firm’s own account and are provided with the proper resources to grow their trading business.

Experienced traders with a documented proven track record will be allocated firm capital to trade.

Firm capital allocation and risk management parameters are based upon experience and performance.

Aspiring professional traders and/or those that lack a documented track record can earn a trader position with Keystone Trading Group upon successfully completing a KTC (Keystone Trading Concepts) training program.

All trainees in the mentor programs will be allocated firm capital to trade while being instructed and coached by seasoned traders. Keystone absorbs any trading losses

Planning for the week to come.

Last week the SPY rallied 4 days on average volume and found resistance at its 50SMA on the daily chart. It closed near it’s 61.8% retrace fib level from the lows made at 104.58 on 2/5. So the SPY has two major places of resistance at its current level with 50 day moving average and the 61.8% fib level.

I will be looking for two strategies to play off of these current levels. One based on a continued rally and one looking for a pullback from these resistance points.

Last week, industrial goods had the strongest showing of the week with the sector up 4.2%. Financials were up the second most at 3.5%. If the market does break the resistance then I will be looking at longs in the industrial goods sector mainly BA & CAT. Although, I would like to see a pullback in BA after it’s 4 days of rallying before wanting to get involved. I am still not convinced that financials are on their way up as they are one of the weakest sectors over the past month, so I will concentrate on industrial goods.

BA made new 52 week highs last week.

The laggard last week was healthcare which sector gained only 1.6%. If the market fails to break through its resistance, then I am looking for continuing weakness in this sector. Healthcare is also one of the weakest sectors for the month down -3.6%. Stocks I will be looking at are MRK and BAX. Both are below they’re 50 day moving averages and are setting up for good shorts.

MRK looks good for a short if SPY can't break resistance.

Because I don’t have a crystal ball to see the future, I want to have a plan for which ever way the market goes. So if it rallies I will be looking at industrial good makers like BA & CAT. If it fails to break through resistance then I will be looking at health care stocks.
For a good site to look at the sectors and how they fare on a daily, weekly and monthly level I like to use Finviz.com and go the page under groups. Good luck trading the next week!

$Time To Buy E*Trade?

E-Trade (ETFC) was up 9% today as talk of a possible takeover candidate. These rumors have swirled and swirled again. Each and every time, there is no substance behind the rumor. This time it may be different!  Earlier in the day, E Trade reported October trading volumes for it’s customers, which came in a bit light. However, the latest report showed that they had reduced its bank-related deposit assets. A major reason for the decline in the stock over the last 2 years.

In addition, TD Ameritrade CEO Fred Tomczyk made some comments about a possible M & A activity in the future at a Reuters conference. He said that and acquisition was :the best use” for TD Ameritrade’s (AMTD) considerable cash position. There have been some talk that the buyout price could be as high as $4.

Technically the stock looks pretty good. Currently trading at $1.69, it traded as high as $2.07 in late September.  After the surge today, it closed above the 50 day EMA at $1.66.  Earlier in the month, it crossed back over the 200 EMA. Risk-Reward, we feel this is one to own!  It may take time to play out, but your downside is limited, your upside looks pretty good.

 

Gold up, Jobs Down$

Gold futures finished at an all time high after surpassing $1100 an ounce earlier in the day as unemployment topped 10.2 % in October, the highest in 26 years. The dollar fell as it became clear that the Fed will not be able to raise interest rates any time soon. This however, did not give much clarity to the stock market today. Volume was light and lacked a true direction. It was promising for the markets that the jobs report did not cause a sell off, but rather the markets held tight and once again traded above 10000.

Today we witnessed many of our own traders try to make something out of nothing. There was no clear order flow for most of the day, yet many were trading actively, causing nothing more than frustration and a negative p and l. It is these type of days when discipline is put to the ultimate test. It feels as though stocks want to move, yet they never really go anywhere. If you are having a hard time deciding whether you want to be long or short and you are flipping back and forth, then you should in fact walk away and do nothing.

As we enter the last couple of months of the year, we expect more of the same. Many days in which there will be no clear direction and days were there is extreme volatility. On the days of extreme volatility we need to be diligent and take quicker profits and quicker losses.

Awaiting Aloca Earnings$

The markets traded in an uncertain fashion today, 47.3% advancing to 43.8% declining. Traders have been anticipating Alcoa’s (AA)earnings after the close. There were few people who wanted to aggressively commit capital today. The financials led the strong stocks upward, while the construction sector led the weak stocks lower(KB Home, lennar and Pulte homes).

Stock selection and sector selection were the key today for any trading profits. It was whippy and there was little reason for follow through. We were very patient today and did our best not to over trade.

Alcoa’s earnings after the close surpriseed many witha third-quarter profit , ending three straight quarters of losses. Analysts had forecast Alcoa to lose 10 cents a share on revenue of $4.5 billion.

This should provide some clarity for tomorrow’s trading, however we remain in a trading range on the SPY. After trading below the 50 EMA last week, they have trade up for 4 days in a row. We expect to see some resistance around the $106.50 level which may just happen in the pre-market. We will look to trade the range with $102.07 as support.