Archive for September, 2010

Up, Up and Away (The Breakout)

September 30, 2010 Leave a comment

Today CHK (Chesapeake Energy) had a great breakout trade unfold that generated great profits if anticipated and traded properly. Looking at the daily chart we can see how the trade scenario is developed. Over the past two to three weeks we can see a clear resistance level around 21.80 for the stock. Ever time the stock approached this level seller came into the market and pushed the stock lower (creating a reference point a trader could expect volatility once the level was broken.)

What makes this trade so attractive (and a must take) is the profit potential compared to the risk taken on the trade (the trader has a solid reference point to determine if the trade is working out, which is the 21.80 area). As we see on the charts below once we broke and held above the 21.80 the closest resistance area was the 21.50-21.60 range (giving the trader a reasonable profit target to aim for if the stock generated some volatility.)

The most important thing here is not the follow through on the trade but the concept of how this trade idea is developed and the reasons why you would want to take a trade like this very time it unfolds.



Whats the Reason?

September 28, 2010 Leave a comment

Today I made a mistake getting out of an good trade to soon. Letting the lack of movement in my direction from market and internals to justify the reason I got out…when in reality there was no reason to exit the trade.Now I must say, not having the markets and the internal at your back makes reading and determining follow through of your trades difficult. But for planned “A”(great) trades you have to let the scenario play out (and if that means taking a loss, so be it).

Today LVS did every thing a trade would want to see in a strong stock. Opening up above Fridays high and continue to trade higher as the markets were pushing lower. The trade scenario did not call for a trader to get out of the trade until it broke the opening lows and close back into Fridays trading range.

I enter and exited within the circled area of the chart below, as you can clearly see I missed out on the initial momentum move higher by exiting the trade pre-maturely. I did re-enter the trade as in continued to move higher but the mind set and management of the trade is much different when you already have your first piece of the trade on for the initial momentum move (adding or riding momentum to profit target) then trying to initiate the position after the move has happened.

Setting Up Your Day

September 20, 2010 Leave a comment

Going into today preparation was the key.  Talking with most of the traders on our desk, last week was a very frustrating week.  I know for myself the important thing was to not get frustrated, review the week, and come into today with an objective view of the market and what stocks I would be trading.  Last week the market had been flat and trading was very stock specific. 

In our morning meeting we were expecting a trend day from the market.  Whether that move was above the 113.20 area or below 112 was insignificant.  What was important was knowing how you were going to trade that scenario if it happened.  Our overall bias was to the long side so if we broke 113.20 we were going to trade that scenario with higher expectations.  The important thing was to have your list of strong stocks and levels that you wanted to get involved at so if the market broke there would be no hesitation.  Once the level in the SPY broke and held the long side was the only trade it was just a matter of getting involved with the proper share size. 

Our desk made most of our money in Best Buy(BBY), Caterpillar (CAT), and American Express(AXP).  This was the type of day to make your week or if properly sized your month.  Last week was a grind while today the market did what it was supposed to do. 


Remember preparation and setting up your day is the key.  Identify strong and weak stocks.  Identify and set alerts for the important levels.  Write down what you are going to do at these levels.  Spend your day executing not coming up with trading ideas.  Have a good night and best of luck tomorrow. 


Trade Set Up

September 16, 2010 Leave a comment

I want to talk about a trade set up that I see play out numerous times in my trading. I am talking about buying previous or two day lows in a strong stock that might show some short-term intra-day weakest (reverse for shorts).

I generally identify the set up as, strong stock with weak close and a weak open. This generally leads the stock to open weak/lower to test the lows of the previous day; which gives you opportunity to buy support (I must stress that you are buying support in a strong stock, reverse for shorts)providing you with tremendous risk/reward probability.

Below are two charts one from NTAP during yesterdays trading and the other is SLW from Friday Setp. 10, 2010. As you can see in both cases the stocks are strong (determined by the daily and hourly charts) and either pullback or had a weak closing price that was followed by a weak open. In both trades the stock traded near or at the previous day lows and then had a tremendous bounce for most of the morning trading in the direction of the order flow on the higher time frames.

Expanding Trade Ideas

September 16, 2010 Leave a comment

This can be a very difficult time to trade if you are not selective and follow your plans using all the tools to make an informed trade decision. As stated in the previous post. The SPY is at a critical area (near 113.00-113.20) of resistance. For the past three to four month the sellers have been able to hold the market at bay around these levels.

What I wanted to talk about was developing trade ideas that don’t just last or play themselves out over one signal trading day; but developing trade ideas that can play out for days possibly even weeks. When trying to develop these trade ideas search for stocks that have sufficient room to move and trade against profit targets. Using multiple time frames you will be able to identify which stocks have good order flow and good potential profit targets.

This is important because trade scenarios need to have good distance profit targets so the risk is commiserate with the reward. Having a strong risk/reward will help you stay in trades longer and build confidence in your ideas. Once you have identified the trend you will be able to focus your trade scenarios in that direction of the order flow by focusing on the pullbacks as opportunity to initiate trades in the direction of the higher time frames.

When I first started trading I would look for stocks that fit my immediate trading plans and would develop scenarios that I expected to play out within the a few days; Instead of looking out a week or two projecting where the stock could be trade do to the underline order flow reading. And then only looking for trades in the direction of the determined order flow.

$SPY in a tough trading area

September 13, 2010 Leave a comment

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.

Knowing what you want see!!!

September 8, 2010 Leave a comment

Often throughout the post we talk about indicators we do and don’t want to focus on to feel confident in our trade ideas.  Today the pieces of the picture came together for long bias trade ideas.  One particular trade that played out well today was NTAP long.    First setting up the trade; we can see over the past five trading day NTAP made higher highs on the daily charts from last week’s rally to test August highs of 44.90.  So coming into today we identified that a break and hold above 45.00 greatly increased our chances for follow through. 

When the markets opened NTAP immediately traded and closed above the 45.00 level during the first  5 min. trading triggering the first(aggressive) long entry (because this was a A long trade).   If you missed this entry waiting more conformation the stock pulled back several times during the morning trading (as you can see on the charts below) for you to manage risk.  The price action in NTAP created higher highs with clean readable pauses.   NTAP never trigger the stop/loss by forming a lower low on the 15 min. chart or traded below the 20SMA on the 5min chart until mid-day hours.    

 The key here was recognizing that the conditions in the market and in the stock lined up to take advantage of planned trade idea.