Tuesday, July 03, 2007

Base and Break Trades - Apple Inc. (Public, NASDAQ:AAPL), CREE, Inc. (Public, NASDAQ:CREE)

I set an alert for AAPL in pre-market because I anticipated a test of the PP at $122. Sure enough the alert ($121.95) went off on the open. AAPL set up a low risk base and break at the $122 level (refer to 3 minute timeframe below). Once it broke $122.50, it rallied hard and fast. I took a partial at $124 and closed the position at the next PP $125. There was a lot of resistance at $125.00, so I was surprised to see it fly another 2 pts. after that. Looks like AAPL will take out its all time high again.



CREE, from last night's watch list, set up a low risk entry at the PP and rallied 1 pt. in less than 30 minutes.



Happy Independence Day!


Enjoy the holiday

14 comments:

Andrew said...

hi jamie,

Can you elaborate on what constitute a pp point? Take for example your apple trade, why did you select 122 as the pp and not 122.50 at the peak of the big red candle on the open of 6/28. I understand from your other posts that pp are points where the stock hit and then reveres. Sometimes I get it right but other times like this apple trade, I would have pick 122.50 as it coincides with the low at around noon on 6/22 and high on 6/28. thx

Jamie said...

Andrew,

I used $122 because it was significant yesterday and it is a round number. $122.50 was also important and the stock did pause at that level. I hope you were able to get an entry on the break of $122.50.

I had not spotted this setup last night as the daily chart didn't look all that great. I only spotted it in pre-market. After 8:00 am this morning, $122 was resistance again.

I will do more posts on B&B shortly and try to elaborate more.

Andrew said...

got it. thx jamie.. unfortunately, i missed the trade. looking forward to your future posts.

chance said...

Just wondering what kind of scan you run the night before to identify candidates? Stocks about to break 52-week high? 30 day high?
I assume you're looking for stocks with high volume that are close to some kind of support/resistance. Any comments will be appreciated.

Jamie said...

Chance,

Scan for stocks > $10 and volume > 500,000 trading above all major MAs 10, 20, 50 and 200. Then I review all of the charts for Base and break type setups, flags, etc.

Anonymous said...

Hi Jamie,
On days where market is only opened for half the session, do you give yourself a time limit by which you've got to be in a trade (say by 10am ET??) or you will give it a miss even if setup is right. I noticed most action happened early in the session and by 10.30-11.00, stocks were trading sideways.

Back on AAPL, how do you manage the stops for this trade? You mentioned adjusting stops to below each WR bars, but on an expensive stock like AAPL, the WR bar can be huge, more than a dollar or two. How to you balance the risk yet not leaving too much on the table? And do you adjust stops based on 15min WR bar or lower time frame WR bar?

Thank you and happy holidays!
YR

New Trader said...

Jamie,

I found your blog couple months ago while I was studying Trader's X blog and I started reading your blog too.

First I want to say thank you for your consistant posting and keep this blog rolling.

Second I have a question, do you have a section on your blog that shows how to read your blog? Is it like I start reading from Day one?
is there a link/section like trader's x blog that shows how to use the blog and get familier with terms, conditions, systems, etc that you use?

Jamie said...

New Trader,

Welcome to the blog! Sadly, I've not addressed that issue yet. I plan to link some of the more popular posts to the side panel for easy reference.

If you are interested in gapper trades, I've only consciously been trading gaps since October 2006.

Basically, I incorporate four elements to my trading as follows:

Gaps - Biggest influence - Trader-X
NR7- Price and volume contraction before expansion - biggest influence - Trader Mike
Base and Break - Biggest Influence - highchartpatterns.com
Pivot Points - biggest influence - self developed.

As far as terms, conditions, systems and setups, its all documented in the blog, and I will outline how to find it in a post.

It's a good idea. I will start today.

Jamie said...

YR,
On half day sessions, I trade the same as usual. I can't force a setup because of time, however, I do watch the clock to make sure that a gapper trade will have time to extend.

The AAPL trade extends very quickly. Once it gets going, I try to keep my stop 50 cents below the price action without placing them at exact round numbers such as dollars and 50 cent as these numbers can be retested and stop you out.

AJ said...

Hi Jamie,
I was actually thinking of going long AAPL on a break of 125. Didn't materialize though, I got called away from my desk. Not sure if it was the 1 minute or 5 minute chart, but after it hit 125, it seemed to pull back on lower volume.
Anyway, hope you had an enjoyable Canada day.
AJ.

Prospectus said...

Great catch on AAPL. You make it look easy!

Jamie said...

AJ,

It consolidated and extended another 38% from $125.55. I guess it was attempting to retest the all time high.

Prospectus,

Believe it or not, the AAPL B&B at the PP in early trade is easy. The only problem is there are so few of these setups that meet my criteria. It usually comes down to being at the right place at the right time. Yesterday I was there watching AAPL in pre-market basing along the PP line.

Anonymous said...

Thank you Jamie

"I do watch the clock to make sure that a gapper trade will have time to extend."

From your experience, usually how much time is required for it to extend? I do understand that this varies from stock to stock, but would like a gauge so I know when NOT to enter on these half day session as there will not be enough time for stock to expand after gapping. Thank you again

YR

Jamie said...

YR,

Many factors at play but on average for a 45% slope I would say about 2 hours for a 38% extension. That's assuming relative high volume. If volume declines after the break, all bets are off.