Monday, February 12, 2007

Dummy Trade of the Day - Southwest Airlines Co. (Public, NYSE:LUV)

LUV was upgraded to outperform at Bear Sterns with talk of a potential buyout. It gapped up on the open and carved out a WR red stick with a long lower shadow. I drew in two lines to mark the OR high and low and then watched as the second candle held above the OR low and printed a bullish reversal hammer. The third bar indicated bullish continuation so I started accumulating on the fourth bar. I added a few more when the OR high was taken out. My target was $16.00. Price ascended out of the U-shaped base in an orderly fashion up to the 38% extension level and just couldn't go higher, so I sold my position. This was a feeling more than anything else because the market was extremely weak, I felt it would pullback to its base before regaining strength to tackle the real target.

I re-entered a second time shortly after LUV tagged the OR high and rising 20 period MA and bounced. Again, it rallied up the 38% extension level and immediately reversed so I was stopped out at $15.82.


NVDA reports earnings tomorrow and it often rallies before earnings. Despite Goldman's cautious statements regarding NVDA this morning, it tested Friday's low and immediately bounced on very bullish volume. I entered long on a break of the OR high. Since this is higher risk, I adjusted my size accordingly. My target was resistance at $34.00. NVDA didn't disappoint me.

P.S. - I keep getting shout-outs to post my losing trades. People say that they can learn from my losing trades but don't provide any compelling arguments to make that point. I certainly can learn from my losing trades because its my money on the line and it hurts when it goes against me, however, I don't agree that there will be a big benefit to readers. Just for the record, I had no losing trades today. The above two charts encompass all of my trading activity for today.

11 comments:

Bubs said...

Great trades again. I think posting certain losing trades is beneficial to your readers. Sometimes you might enter on a nice setup but it might not be a perfect setup like the M.A. is far away or not enough volume or lots of resistance before your exit target. By looking at these trades your readers should realize that some trades might look good but their are also other factors that aren't mentioned often. When you look at these trades after the fact they look very easy to me but we all know they are not. I'm not saying to post all your trades just the ones that someone might learn something from like having the M.A. near by increases the chances of the trade. just my two cents on this topic. Take care

Jamie said...

Hey Bubs,

Thanks for your thoughts on this subject, I appreciate your input.

Ragin' Cajun said...

What do you think about holding NVDA through earnings?

Jamie said...

Ragin' Cajun,

Very risky. Analysts are expecting earnings to be in line, so the potential upside doesn't seem worth the risk.

Yaser Anwar, CSC (Trader- Equities & FX | Quoted 7 Times In WSJ, Twice in NYT & FT) said...

hey- we all have losing trades! Besides we learn from all types of trades of yours. Hopefully you will not have many ;)

Also, the 2nd blue bar where NVDA would have been a short, what does it represent?

thanks!

Yaser Anwar, CSC (Trader- Equities & FX | Quoted 7 Times In WSJ, Twice in NYT & FT) said...

forgot to ask- for the LUV trade- the chart has a fibonnaci grid on it right? tx

Jamie said...

Hey Yaser,

Yes, we all have losing trades, and hopefully they are few and all small as opposed to Oops, I forgot to put a stop.

The significance of the lower blue line is pivot point support dating most recently back to Jan. 10th and then as pivot point resistance on Jan. 19th and Feb. 5th. If it doesn't hold, NVDA will fall back down to $31.10 - $31.20.

That is a Fibonacci extension from the previous day low to the OR high on the LUV chart. Thanks for mentioning it as I will have to articulate that more clearly in the future.

Good Trading!

Anonymous said...

Jamie

What is your exit strategy with regards to stop loss point, i.e. previous low, scaling out and selling the remainder. Do you have any hard and fast rules you could share with your readers or is it just gut feel?

Many thanks
Keep up the good work

Lee

Jamie said...

Hi Lee,

I usually have a target based on support and resistance levels. I also use, Fibonacci extensions and retracements especially when trading unfamiliar stocks.

I like to take partial profits when I have them. For example, if a stock breaks out of the OR high and carves out 3 WRBs in a row, I'll take some profits.

End of day momo moves are slightly different. I often try to stay in the position until just prior to the close. An example of this is last week's NT trade. Notice how the move starts very slowly with small candles and builds with increasingly wider bars. When the bars get wider, I move my stop half way up the previous bar just in case of a sudden reversal.

Hope this is helpful.

Anonymous said...

Thank you Jamie, most helpful. Lee

Jamie said...

You're welcome Lee.