Thanks to all those who submitted feedback over the last few days either through posting (Thanks Jim!), comments, and/or emails. I've got a backlog of emails so it will take a few days to answer everyone. I plan to get back to regular postings after the long weekend.
Tonight, I'm focusing on a single trade. The midday reversal on GM's sales news probably caught many of you covering shorts as this trade did for me.
The first chart is the daily chart and it highlights a target trade - trading to the pivot point as opposed to trading from the PP. Basically, I was looking for a break of yesterday's low to take me back to the PP base which lined up nicely with the rising daily 20 EMA. Target Trading is something I learned from HCPG.
The 15 minute time frame looked somewhat like a H&S top. On a measured move basis, the 100% Fib. extension from the top of the head to base lined up perfectly with the daily PP target.
The 15 minute chart shows how price broke out of the base and carved out a WRB which closed on its lows. When the BO bar prints wide and closes weak, we know we have an excellent chance of success. There's one caveat though, and that is the lack of a dicernable volume increase on the BO bar. The volume is easier to see on the 1 minute timeframe below. I took a partial at the next support level because normally, this is where price starts to consolidate the last leg down. There wasn't much of a consolidation, before price continued lower. I was almost certain of reaching my target when the second WRB closed on its lows, but I was expecting a consolidation because now price was so far away from the down sloping 5 period ema. Price and the 5 period EMA are like magnets, eventually they always come together.As you can see from the chart, they decided to get back together sooner than I would have liked. Consolidations can take place through price or through time, or a combination of both. Usually it's a combo and price and the ema share the workload, but in this case price did all the work and the 5 period ema just sat back and waited.
Rule of thumb if there's no reversal stick to foreshadow a retracement or reversal and nothing else to key off of, don't give back more than 38%. 38% is a normal retracement, anything more than that could turn into a reversal.
There was no NRIB, NRB or NR7 on the 15 minute timeframe to setup the trade properly, but this does not deter me from taking the trade if I see an orderly three PP base on the lower timeframe.Click on the chart to read my notes. I like to see price consolidate in a narrow range before breaking out. If this doesn't look like it's going to happen, I wait for the BO and the retest before committing money to the trade. This avoids getting caught in a head fake which can be quite costly if you are using Point A as your stop.
13 comments:
Hi Jamie,
Where did you place your initial stop since there is no NRIB, NRB or NR7 just prior entry?
Were you expecting 3WRB to take final profit had it not retrace more than 38%?
YR
YR,
After price retests the base and then makes a lower low, you can use the high of the retest as your stop.
Yes, I was expecting 3 WRBs, although because the second was so wide, I didn't expect to get 3 consecutive WRBs.
Wow. This post is slap full of nuggets.
Thanks Jim,
Trying to keep it interesting.
Hey Jamie, just got around to reading this post today and I have a few questions.
So after the BO and we get a retest of the former support would one enter on the break of the last low which would be around $91.73 (12:02pm bar) and have a stop at the high of A which is $92.92 (11:51am). Correct?
Why not use the lower high of the BO point which was around $92.17 (12:08/09 pm)?
The last few weeks exiting has been my biggest downfall. I seem to pick decent entries but then give back a decent amount by not properly exiting. In this example can you walk me through your thought process as the trade develops.
Would it go something like this.. after each leg lower you would try not to give back more than 38% so after the 12:29 bullish reversal bar signals a change in momentum you would be on alert. You would then plot fib lines from the BO to the swing low and the 38% retracement would be slightly above $91.00. So then your new stop would be slightly above $91.00.
Something along those lines?
Thanks I appreciate it!
PDT,
For the first part of your question, see my response to YR above.
Most stocks form a base before they reverse unless they are extremely extended. The FDG trade is an example of what I do when I get caught in a short squeeze. When GM announced their sales figures, the whole market reversed and the shorts got squeezed. Today's market conditions are ripe for this type of reversal, but for the most part, look for normal retracements to occur at different points during a trade.
If you're finding that using a textbook approach gives back too much profit, try taking a partial. This works for me. I like to book profits after three consecutive WRBs. The exception is when the market is ripping or I'm target trading.
Give me a specific example of a trade that caused you trouble on the exit and I'll see if I can help.
Well this was probably greed that cause this but I traded a B&B at $18.00 on ZLC on tuesday. I had an initial target of 38% ext of the previous day high to the ORL (Trader-X style) which was hit. I was greedy and decided not even to partial and had a new target of $17.00
After the 1:15pm new low I decided to move my stop to above the last lower high which was at $17.65 but then price quickly reversed 1:45pm and I was stopped out. Was there something I could have done better? (besides partialling out earlier)
Reading through your recent posts and looking back now I guess I can see a base forming at $17.52 (which is also the fib ext). A break of that resistance should been my exit I guess.
I guess there is a fine line between giving enough wiggle room and giving profits back. I'm sure this skill comes with many years of experience.
One more question :)
Looking at the daily chart was $17.00 a reasonable target?
PDT,
Trader-X knowledge - you traded this using the Trader-X model, so you should respect his knowledge and take at least a partial profit at the 38% Fib. Ext.
On the 5 min. chart price formed a bullish rounded base and when it broke , it exploded so I'm sure you had some slippage there as well.
Bull/Bear tug of war is hard to see on 15 min. timeframe, so I suggest that all traders use multiple timeframes.
Second point - 50 cents on an 18.00 stock is like $2.00 on a $100.00 stock, so set yourself a reasonable expectation. Also, take profits at whole numbers. Again, 50 cents compares to a whole dollar on more expensive priced stocks. Whole numbers are spots where bull/bear battles occur, so to protect profits against the enemy, take a partial.
Third point, it's okay to be greedy, I'm greedy too, but only on the second half of my trade. That's my gravy. The first half of my trade pays the rent.
$17.00 was a reasonable target for the second half of your trade. I see a tiny base there late Feb.
You are definitely correct. Trader-X has been doing his thing a lot longer than I've been and his guidelines should be respected. Half partial should have almost been mandatory... lesson learned.
Good points about the whole and half dollar marks.
Also good point about the bullish rounded base. A lot more clear on the lower timeframes. How does one distinguish the difference between a bullish rounded base and a bear flag? On the 5-min 11:50 -> 12:00pm looks like it could have been a bullish rounded base but turned out to be a flag. I guess you could argue the fact that this battle was being fought at a .50 mark and also the MA crossover was definitely a cause for concern.
Thanks for going into such detail about this.
PDT,
Compare the [relative] volume in the 5m bars in the bear flag (11:55, 12:00, 12:05 bars) versus the bullish rounded base (1:45, 1:50 bars). In this case, their was much higher relative volume on the right side of the rounded base.
Also, time of day was a factor. 1:30ish EST is often a reversal or breakout time zone.
Pure gold. Thanks.
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