Tuesday, November 18, 2008

2 Inside Bars - Research In Motion Limited (USA) (Public, NASDAQ:RIMM)

RIMM rose to the top of the usual suspects watch list for the second day in a row and setup one of the easier trades we have - 2 inside bars (NR7) at the base of resistance. I place my fib. extension lines from the previous day low to the base as opposed to the ORH because the base is inside and I don't want to overshoot my target. Plus the base lines up nicely with a whole dollar level. I enter when the base is taken out.

The prelim. target was the 38% extension because today, like yesterday, was another market in a funk kind of day, so take what you can get, but don't try to be a hero.

The primary trendline is the blue line on the 15 minute chart above and it came into play later in the session, with a vertical move into the close.

The 1 minute chart below details the entry and exits.

After taking a partial on a vertical move, you want to give it enough room to retrace to the trendline, but at the same time you want to hold the previous base as support. The red line segment was the level of my stop after taking a partial.

Using trendlines on the lower timeframe to help manage the trade is extremely helpful. I learned my trendline basics, amongst other things, from John Murphy's "Technical Analysis of Financial Markets" I highly recommend that all traders read at least one primer on technical analysis. This one is the easiest to understand for newer traders.

Two points on a trendline is tentative, the third point validates the trend. So, going back to RIMM's 15 minute chart, we have a valid trend and we will look for our next trade when price retests the primary trendline.

6 comments:

Susan said...

Jamie,

What was the purpose of drawing the horizontal trendline?

On a 1 min. chart, what rule do you follow to be sure that the trendline is broken?

Thanks for the book recommendation. Will surely read this.

Thanks,
Susan

Jamie said...

Susan,

I was looking for a symmetrical triangle to form, but as you noted the line was horizontal. I don't like to enter after several consecutive green bars, so I was looking for price to move into the horizontal line, consolidate sideways and then break out.

Ultimately, a better trigger presented itself on the shakeout at the base of the primary trendline. After that you place a stop below the trendline and watch to make sure price can break the horizontal line. If price stalls at the horizontal line, we want to see consolidation not another retracement. When price breaks the line, it moves higher and retests as a springboard to a higher move. That's the way it's supposed to work and it gives us confidence in our trade.

Look at yesterday's RIMM chart. I drew a similar line and used it as my entry point. The flatness of today's setup worked differently, but had I not entered on the shakeout, I could have entered on the retest of the horizontal line and still catch a good portion of the move.

Angelo said...

Hi Jamie,
Nice RIMM trade. I made a mistake. Today I was long RIMM from the shakeout pullin you highlighted. I sold my position on the low of next pullin. I was also long aapl and I sold at the same time that I sold RIMM. I am working on taking profits at the right time.

Keep up the good work!

Jamie said...

Thanks Angelo,

Yeah, the last hour was quite choppy. I was going to go long futures but decided against it. Managing two trades at the same time in last hour is hard to do these days!

bl said...

Nice trade Jamie, looking at 5/60" see 5/10/20 ema's coming togethor for a rally at 42 with candle like, Monday

Jamie said...

BL,

Good observation. Are you trading from 60 minute charts?