Saturday, January 03, 2009

Box Trade - Apple Inc. (Public, NASDAQ:AAPL)

A reader asked what is the easiest setup to master. I would have to say that basic chart patterns such as C&H, flags, and H&S along with the box trade are relatively simple setups to execute. I usually look for box trades from my watch list. I look for stocks basing in a narrow range over a period of three days or more. The longer and narrower the box, the more powerful the setup.

AAPL had been basing for 6 days between $84.75 and $88.00. Today it moved out of the R-zone and stair stepped towards the base at $88.00. I usually set an alert inside the base so that I know when to start focusing on the setup. If price moves sharply into the base, it needs to consolidate that move before breaking out, so patience is required to spot the correct entry. AAPL carved out an inside bar (NR7), green on green, which is my favorite for longs.

FWLT had developed a box over the minimum three days. It moved sharply towards the base and retraced 50% allowing for a scaling in, ambush setup followed by additional size after it moved back into the base and printed a tight, narrow handle at $24.00 on the 1 minute chart.

Use Fibonacci as opposed to pivot levels to help plan the exit strategy. The pivot levels are usually tight after a stock has been in a narrow box over several days, so the R2/S2 levels are usually easily taken out.

CELG was a failed C&H pattern. I set my initial stop 2 pennies below the previous (outside) bar low. I eventually tightened the stop as depicted by the red line segment because the setup looked hopeless and I was stopped out. My initial stop would have been been taken out by 1 cent, followed by a reversal and full extension of the measured move of the pattern. Once a pattern fails, it's hard to get back in because you don't trust it anymore.

9 comments:

timo4sho said...

how many trades do you usually take on a regular day?

timo4sho said...

oh and of course Happy New Year and all the Best for 2009 !!! ;-)

Timo

Tyler said...

Jamie,

Thanks for the great post. I have been looking at the daily chart recently to find those stocks that are consolidating like you mentioned (NRIB, etc.). I read an old post of yours about looking at the daily and the 15 and there are some great moves by doing this.

I think I am finally understanding how everything comes together a little better.

Thanks,
Tyler

...2RT said...

Hi Jamie,

Thanks for the post. Now I know how to look for a nice setup. Really appreciate your kind post.

Douglas

addtrader said...

Nice trade Jamie. I posted on my blog a couple days ago, how unprecidented the 6 IB days on AAPL were. I knew it would break one way or the other, but I suspected it would be down. That didn't stop me from getting some of it long. But it still hasn't come out of a large descending triangle. If this break fails and it moves back below $85.00, it could have a measured move down to $50.00.

Formerly ADD Trader

Jamie said...

Timo,

Happy New year to you too. On a regular day, I like to take 3-4 solid setups like the above. And of course, there's usually a few scalps or boredom trades in between.

Jamie said...

Good job Tyler.

Hunting for focus list stocks from the dailies and setting alerts at key S/R levels is a great way to prepare for the trading day ahead.

Jamie said...

Welcome Douglas,

I plan to do more mentoring posts to help new traders in 2009. When the markets broke down in 2008, the increased volatility offered lots of opportunity as well as chaos. If we bounce (wave 4), we'll see more orderly trading for a while, until we start wave 5.

Jamie said...

ADD,

I think that some shorts were publishing false rumors about AAPL. This stock will likely run at least until earnings, notwithstanding more rumors about Steve Jobs' health. The thing that bothers about his health is the fact that he still looks so gaunt.

How about MSFT for RIMM? That could be a nice trade.