Wednesday, April 11, 2007

Dummy Trade of the Day - CheckFree Corporation (Public, NASDAQ:CKFR)

I missed the pre-market and the open due to a dentist appointment so I found CKFR on the Briefing.com gappers list. I went long on a bullish engulfing like reversal pattern. The OR high and 38% Fibonacci retracement level lined up fairly well so I exited the entire position. I left too much money in the table here, in retrospect, I should have taken a partial. My stop which was two cents below the first consolidation bar following the two WRBs, would have kept me in the trade for the next leg up.

11 comments:

Prospectus said...

Nice, Jamie. I was watching CKFR as an OR breakout short, and it didn't play out. Here's my shotgun of questions:

Do you look at a chart, determine directional bias and then look for patterns, or look for patterns in isolation? I find that my Long/Short bias tends to influence the patterns I see, and I'm wondering if I should try to fight that. I often misread the price action, and end up positioning on the wrong side. Plus, once I choose a side, II tend to be not really open to looking for signals to position the other way. Do you have any pointers on this subject?

Also, the bullish engulfing candle is on lower volume than the prior candle. Does that matter much, or does it imply weakness?

I also take it that on the engulfing reversal, that the reason it caught your eye is that it closed so strong? If it left an upper tail would you still have entered?

Thanks!

bl said...

J,
Nice. Looks like offsetting bars also. 3/30' hammer. TSCO 4/15 hammer AMTD 3/30 offsetting.

Anonymous said...

Jamie,
the 5 EMA was downward sloping. For such fading moves, how do you decide when to ignore this and enter the trade? Thanks

Pat

Jamie said...

Hey Prospectus,

In general, I prefer the long side over the short side. However, when my screens are covered in red, I try to go with the flow. Today was exceptional because I had no info regarding what was moving the market when I first sat down to look for potential setups.

However, with so much selling taking place in the first hour, I was initially looking for a potential reversal and that's why CKFR caught my eye. I thought it would retrace 38% and then setup another shorting opportunity.

The long/short bias can throw us off. The market can throw anything at us and we have to react as opposed to anticipate.

One thing I've noticed lately, and this may change going forward, my shorts don't last very long and they mostly end up being quick hits. Choosing a side and sticking with it could be harmful to your trading account. You might want to try taking a partial profit after at 25-38% extension and moving your stop to breakeven on the balance.

The trend for CKFR is bearish based on the wide gap down so I expect volume to be stronger on the short side. My intention here was a retracement followed by more selling so the volume on the engulfing bar was not significant in my decision to take the trade.

The strong close was very favorable in my entry. It was a cautious trade as I did not enter until the 7th bar had ticked up a few pennies.

My bias of weakness with respect to CKFR, prevented me from getting a bigger profit. If I had stuck with my usual partial, I could have done better. Again anticipation versus reaction got in the way of the trade's full profit potetial.

There are so many factors that determine how and when to enter a trade. Some of the the things to consider: candlestick reversal patterns, time of day and normal retracements, volume, proximity to and angle of the MA, pivot points, support/resistance levels, orderliness vs. choppiness, and risk:reward.

I would suggest that you focus on one or two simple patterns and try to trade them successfully three times in a row with small money. Then you can double your size and do it again three times in a row, before doubling again.

Hope this answers your questions.

Jamie said...

BL,

Yes, the offsetting reversal bars are key, it looks good on the 30 which I had not looked at when I took the trade.

Jamie said...

Pat,

The MA was downsloping but still far enough above my entry that I could expect at least 30 cents profit before the MA would be reached. Had the MA been very close, I would have waited until it was taken out similar to the STX trade yesterday.

Prospectus said...

Thanks, Jamie. That helps a ton! You're very generous with your knowledge.

Zoomie said...

Yes, thanks for the post and critique!

Jamie said...

Welcome guys.

Anonymous said...

Thanks Jamie. How close to the EMA will deter you from entering? $0.2?

Pat

Jamie said...

Hi Pat,

I like to have a minimum 1:1 risk:reward on these types of setups.