Monday, November 10, 2008

Swing/Day Trade - Canadian Natural Resource Ltd (USA) (Public, NYSE:CNQ)

The first chart is CNQ on the TSX and the second chart is CNQ (USA). I don't want to deal with foreign exchange in my retirement account so I'm basically sticking to a short focus list of Canadian stocks that trade on the US markets. In general, stocks that trade on the US markets are much more liquid than Cdn. stocks that don't.

The setup is a 50% Fib. retracement from the previous day low to the ORH (gaps) into the up sloping trendline. I took a partial when price retraced back to the base and I'm holding the second half of the swing overnight. My target is a gap fill at $60.00 CAD.

The day trade was executed in the same manner, except the second half was closed EOD.



Trade Management:

In my swing account I risk between 1-2% capital per trade, depending on the quality of the setup and the market conditions. I don't use hard stops especially when trading from a trendline. Price can test the trendline several times before bouncing. I want to give the trade a chance to work, so I allow for a reasonable amount of consolidation and at the same time respect the risk ratio. If I'm trading a pattern such as a flag from the daily chart, I like to let the second half run a full measured move. In the case of CNQ I have a specific target and I will exit on target or manage the trade from the trendline if it fails to move higher tomorrow. Under current market conditions, I always take a partial on day one. If the trade does not perform well after I initiate the trade, I scratch or take the loss and move on. A good setup should start to make money shortly after entry.

CNQ closed on its highs so the expectation is that will continue with strength on the open. If it gaps down tomorrow, I will look for a gap fill. If that doesn't look feasible, and the trendline is broken, I'll have to exit the trade.

14 comments:

QQQBall said...

"A good setup should start to make money shortly after entry."

that trade qualifies! no messing around. nice snag there.

yr said...

Jamie,
Was wondering if you waited for any confirmation before taking this trade? Why not after the completion of the bullish morning star reversal pattern?

Jamie said...

Thanks QQQBall

Susan said...

Great trade Jamie. Would you call the CNQ setup morning star reversal?

Jamie, if you have time, can you pls. see today's 5 min. chart of FLS? I entered long at the 11.30 bar when it crossed yesterday's high, treated the setup as morning star reversal pattern. The trade did not work out as intended. Any idea where I went wrong?

Thanks

Jamie said...

YR,

Commodities were the main pockets of strength following the Chinese stimulus package announced overnight. I saw a strong stock which had held up well in the early part of the day, fall into its trendline. I watched as it consolidated on the 1 minute timeframe and jumped in on a break of a NR consolidation. I knew it would bounce, but didn't know how far. Once it had retraced more than 62% of the swoon, I knew it was going all the way.

stiks47 said...

jaime, is there a situation when one time you may buy the 50% retracement and another time you would short it, or not buy it at all? i am trying to figure out how one would know to buy a gap up pullback to 50%. is this not catching the falling knive (the pullback)? for instance, i am looking at the mbt chart, it gaps up, retraces, and then continues to fall. do you see something in the chart that would make you hesitant to buy mbt at the 50% level? or maybe there is no candlestick formation occurring that you would feel comfortable buying.

Jamie said...

Susan,

CNQ did form a perfect morning star reversal, confirming my long entry, but I entered on a bounce from the trendline prior to completion of the pattern.

FLS is very similar to CNQ in that it bounced from its three day trendline. The 5 min. morning star was a good attempt at a long entry based on a successful test of the ORL, but the markets were really weak today and there was no follow thru.

Try looking at your stocks from a wide range perspective. For FLS I see a base (support) at $54.00 and resistance at $58.00 (former support = resistance). Draw your trendline from Thursday's low (ignore Friday's Obama press conference swoon). The trendline was tagged twice today. Within the context of S/R, and the trendline, you may be able to trade FLS tomorrow.

Jamie said...

Stiks 47,

I don't see any reason to buy MBT at the 50% Fib. retracement. The gap fill for MBT occurs near the 38% retracement. There's a small base at $42.00 from late Friday. MBT tried to bounce from that zone but no follow thru. I see a few areas of support and resistance within the $42.00 -$40.00 range and would not have been conformable shorting within that context.

As I mentioned in the last comment FLS was a good candidate as it bounced simultaneously from the 50% Fib. retracement and three day trendline just like CNQ.

Susan said...

Excellent Jamie. Love how the trendline coincided with the support and bounced. I wish I can learn how to use trendlines and S/R so effectively.

Jamie, how do you determine S/R? I had $58.00 as resistance but not $54.00 as support.

As always, appreciate your response.

Susan said...

Jamie,

Do you draw trendlines on 5 min. chart also as you do on a 15 min. the previous night?

Jamie said...

Susan,

I only draw trendline on 15 minute the night before. $54 was ORH on Friday. I'm ignoring the long upper shadow which formed midmorning fri. also late afternoon high Friday. Plus low today makes three pivots.

Jamie said...

I will do a post on trendlines in the near future.

stiks47 said...

thanks for your insight. and i am with susan, trying to figure out the s/r resistance areas you key in on. i can see it after the fact, but during the battle, it takes some chops and mucho experience. sorry,had to throw in the mucho, i am down in mexico for business. arriba!

Jamie said...

Stiks47,

Sometimes I stare at a chart for so long, I can't see the forest for the trees. That's why I like looking at the wider view and adding trendlines to help me figure out what's really going on.