Friday, March 30, 2007

Dummy Trade of the Day - NutriSystem Inc. (Public, NASDAQ:NTRI)

NTRI was a planned trade based on a base and break pattern on the daily chart above. It did not gap up on the open but I used the Fibonacci extension to determine the best entry and exit points. Long on a break of the OR high with a partial as price tagged the 50% extension. I was stopped out on the balance during the late morning market swoon. I re-entered when price recaptured the 5 period EMA with a target of 100%. We didn't quite make that second target so I tightened my stop to $53.00.

A similar base and break pattern is setting up on TSAI for Monday so add this to your watch list.

My other dummy trade was DNDN as it reversed on its pivot point after the midday swoon. I picked it up at $13.00 and sold as price approached the 38% retracement. Notice the volume spike as price dipped into the pivot point, signaling the end of the move.

A reader submitted this trade of CCJ which I like as well. Trader-X refers to this setup as a beyond the Fibonacci extension. Price consolidates in a bullish fashion just under the 38% extension and when the rising 5 period EMA comes into play, price extends beyond the 38% level to the 75% level. Plot the Fibonacci lines in the usual fashion and exit when the target is met, or price stalls. I notice you are using the 10 minute timeframe so in your case the OR high is the high of the first 10 minute candle. The extension lines don't line up as well on the 10 as the 15. For example you extend from the 50% level but your exit doesn't tag a specific line, it just falls between the 75% and 100% levels. I guess you could add another line between 75 and 100 to make it fit.


Anonymous said...

Hi Jamie,
What made u decide to exit DNDN at 38% fibonacci and not 50% or 62%?

Hope u can elaborate abit more on your entry for NTRI? Why not enter upon break of pivot but wait for first bar to be fully formed?

Thank you very much.


greytrader said...

Same question on DNDN, why the 38% retracement ? I hung around and gave back a good chunk of my gains. Was it the first two strong down bars ? It is a balancing act between exiting too soon and missing out on a large part of the move and giving back too much of your gains.

Jamie said...

The setup on the DNDN trade allowed for a suitable risk reward ratio, but through obserrvation and experience I rarely trade this setup anymore because the 38% level is the max attainable and usually the R:R ratio works out unfavorably.

The setup is marked by immediate control over price by the bears with no attempt to rally beyond the OR high because the opening gap is just too wide, followed by a steady down draft. The rally off of support is nothing more than a narrow consolidation, hence the limited upside.

Check out BCE on Thursday, it represents a good model for how the action usually plays out.

The DNDN setup allowed for good return based on the midday market swoon, which was exceptional. Most of the setups look more like the BCE chart than the DNDN chart.

On the NTRI trade I was looking at both the 5 and 15 minute timeframes and the thing that spooked me was the volume, which was lower than anticipated for a breakout in the first 15 minutes. That's why I waited for a break of the OR high.