Wednesday, April 04, 2007

Dummy Trade of the Day - ImClone Systems Incorporated (Public, NASDAQ:IMCL)

IMCL gapped up on the open. The OR was weak but held the pivot point from Wednesday as support. The fourth bar was an inverted hammer signaling a potential reversal. The next two bars were inside bars, but the increase in price confirmed the reversal was in play. I entered close to the rising 5 period EMA on the seventh bar. There was plenty of room to run before reaching the OR high, so I felt the setup was good and would generate a profit even if the break of the OR high failed. I took a partial when price tagged the OR high because I didn't feel enough momentum and didn't like the upper shadow on the previous bar. My original stop was the fourth bar low and I moved my stop to breakeven after taking the partial.

I re-entered my full share size after IMCL took out the OR high and came back in for a retest. I took a partial as price approached the 25% extension and moved my stop to $41.98 (two cents below the pivot at $42.00 on the 1 minute timeframe). After testing the 25% extension, price pulled back before rallying up to the 38% extension.

This is a slow moving trade because the angle of the rising EMA is 45 degrees throughout most of the session. The pace picks up as does the MA angle after the OR high is taken out. Don't be over zealous in tightening your stops on slow moving trades like this.

9 comments:

ExEngineer said...

Awesome, Jamie. Just awesome.

Do you go looking for certain types of setups based on how the markets are acting, or do you just look at all your watchlist stocks and see what appears? How many trades do you take a day, on average?

Prospectus said...

^ That was me ^ Whoops.

Andrew said...

Hi Jamie,

Can you tell me your reasoning why you said the 4th bar was a sign of reversal? I interpreted as it made a higher high but it was quickly sold off meaning that there are still alot of selling pressure left. Thanks.

Jamie said...

Hi Prospectus,

Thanks for your enthusiasm!

I scan for gappers in pre-market and I have some watch list stocks as well. I like pivot points and chart patterns. There are certain setups that I prefer from experience. Today I did four trades and only one was pre-planned. Like you, I also traded KLAC on the base and break pattern. I used a buy stop order so my entry was filled two ticks above the base at $55.02 and my exit was $55.30.

My planned trade was FSLR which I entered on a break of the OR high on a buy stop order. It had formed an inverted H&S pattern on the 15 minute timeframe over the previous six sessions.

My last trade was a gift. I was reviewing the RVBD chart, one of my usual suspects, when price popped on a huge volume spike. I waited for price to come back in a bit and jumped in.

It was a good day despite the range bound market.

I like to have at least 4-5 planned trade ideas like I did today. Two triggered but I was only able to trade one. The hardest part of the trading day is sorting through all of the gappers, selecting and monitoring those with the most potential.

I keep one eye on the Qs to gauge how the market is behaving and try to manage my trades within that framework. I don't bother with the TICK, TRIN and ADV-DCL metrics. I analyse the NASDAQ chart every night so as not to have too many unexpected surprises.

Jamie said...

Hi Andrew,

I guess I wrote that too quickly and did not elaborate enough. The inverted hammer - fourth bar -when it comes after a decline can be a reversal bar, but unlike a regular hammer, the inverted hammer needs bullish confirmation. So the next bar closed higher than the inverted hammer's real body, thus confirming the reversal. I'm using Steve Nison as my candlestick resource and he does not require a close above the shadow, just the body to confirm a reversal.

Prospectus said...

Thanks for the response, Jamie. On KLAC, how did you choose the exit? Was $55.30 you target or were you watching a 5 minute chart maybe?

Thanks again for your blog.

Jamie said...

Prospectus,

My exit on KLAC $55.30 was 2 cents below the OR high. After I entered the trade in which I originally intended to go to the 38% Fibonacci extension, I looked at the long time frame (monthly) and realized that KLAC was testing long-term pivot point resistance and was unlikely to break through on a pre-holiday range bound session, so I decided to exit as price approached the OR high.

Andrew said...

jamie,

thnx for anwering my question. you mentioned you use steve nison as a candlestick resource, i'm looking to learn more anout candlestick. would you recommend his material or do you have any other suggestions. thanks

Jamie said...

Andrew,

The best resource is Steve Nison. I recommend his first book Japanese Candlestick Charting Techniques second edition

Read the entire book once through and then go back and memorize the key reversal patterns in chapters 4-6.