Thursday, August 28, 2008

Wide Gap (3 Pivot Point Base & Break) - MBIA Inc. (Public, NYSE:MBI)

The first chart is the 15 min. time frame for MBI, a wide gapper with high pre-market volume which I traded today.

The second chart is the 1 minute time frame which highlights the key criteria to look for when scoping out the wide gap 3 pivot point base and break.

I developed this setup to trade wide, high volume gappers because they always seem to break long before the 5 period EMA catches up to price on the 15 minute time frame. Since proximity between price and the 5 ema is a criteria for a solid entry point on the 15 minute time frame, I was never sure of the correct timing and often let these setups pass me by. The last two charts show how far the 5 ema was lagging after the BO and just prior to the BO. In fact on this trade, price and the 5 ema never met until after the target (38% Fib. extension of the previous day low to the ORH) was achieved. A wide BO bar that closes strong helps pull the 5 ema closer to price.

The attributes I look for on the 1 minute chart are:

  1. 3 pivots near the OR (high/low for shorts) define the base, ideally the pivots form near a whole or half dollar level;
  2. price prints higher lows (lower highs for shorts) after each pivot;
  3. tight price/volume contraction just before the BO.
  4. 50 SMA breaks in close proximity to shorter MAs prior to or at BO.
The 15 minute opening range is key as in any gapper trade. A solid candlestick in the direction of the gap is the first observation to make. High volume is also an important success factor.



Related posts: AMLN PCLN VMW

9 comments:

Am I Bald? said...

Jamie,

Thanks for the great explanation of the trade. Very helpful. All of your trades are so perfect!

Thanks,
Tyler

Jamie said...

Thanks Tyler,

MBI was ripping on the TI pre-market scanner this morning.

Day Tradr said...

Beautifully explained.

Tom T. said...

Thanks very much Jamie - I feel I better understand how you plot the pp's now and execute the trade. I approached the problem of the lagging 5ema by looking at the trade as a 5 minute time frame but that does not always work out for me - I think your system is better because you are also factoring in other symbols to confirm, including volume analysis which appears to add another layer of certainty - thanks again - Tom.

Jamie said...

Thanks day tradr.

Jamie said...

Thanks Tom,

I wish I could find one of these types of setups everyday!

QQQBall said...

gracias... the 1-mon chart is awesome.

QQQBall said...

plus, 1.382 extension is pretty amazing on that trade.

Jamie said...

QQQBall,

Seems to work well on story stocks either earnings gaps or other big news.