Monday, January 29, 2007

Trade of the Day - Continental Airlines, Inc. (Public, NYSE:CAL)


CAL had been on a steady slide for a week and half. This morning in the pre-market, it started gapping up. Knowing that if the stock broke the pre-market high, it would likely set off a squeeze on the bears, I readied myself to trade this on the lower timeframe. I used the 5 minute timeframe for the entry on a bull flag break, on an uptick in volume. Once the trade was well underway, I managed the trade from the 15 minute timeframe, moving my stop just below the low of the previous bar. I was stopped out on the 7th bar. The stop out was unfortunate given that stock turned around shortly thereafter and went up another $0.70, but that's the way it goes.
The squeeze play moves very fast and is generally not low risk, however, if a suitable entry can be found on the lower timeframe, the reward is usually worth the extra risk.



6 comments:

Anonymous said...

Hi J.
On your CAL trade would have your stop loss been below the second bar low on the 15 minute timeframe? and when you do place your stop? As soon as you place the buy it? nice trade by the way.
thanks you.

BAsim.

Jamie said...

Hi B,

Thanks. My original stop was actually the low of the first 15 minute bar which lined up pretty well with CAL's Friday afternoon high. See the blue line segment on the 5 minute chart.

The reason the stop has to be set so wide is that the trade takes place in the first half hour which can be pretty rock and roll, and secondly, it's a NYSE trade and the specialists are fond of taking out the weak players. I do set my stop as soon as my entry goes through and I move it up every 15 minutes when the angle of the trade is > 75 because that generally means it's a momo move. Notice how there is no overlap of the real bodies of the candlesticks on the 15 minute timeframe until I get stopped out. These are the best trades.

Anonymous said...

Hi Jamie.
So do you know before the mrkt opens what you will be looking at and place trades accordingly. For example: you see an NR7 on the daily and then zoom down to smaller timeframes and look for dummy trades there? Or do you just scan for gaps and place dummy trades when you see them? I also noticed that it's better to place dummy entries closer to the open of the day rather than in the middle or later in the trading sessions. Is that observation correct?

thnx.

Basim.

Jamie said...

Hi Basim,

I outlined my morning routine for finding gapper dummy setups in a post entitled Trading Gaps Dummy Style - Part I on October 22nd. You can search the blog or the archives to find it or use this link http://traderjamie.blogspot.com/2006/10/trading-gaps-dummy-style-part-i.html

I also have a list of favorites which I check ever night on the daily and 15 minute timeframes.

The best dummy setups generally occur either in the first 20 minutes of the trading session, mid-late morning and mid-afternoon after an orderly pullback.

The most important criteria is volume because volume moves price so I look for stocks trading 3-4 more volume than the days leading into the initial gap.

Hope this is helpful.

Anonymous said...

everytime you type something on this blog i learn something. Thanks jamie. \

Basim.

Jamie said...

You're welcome Basim.