Monday, February 09, 2009

Profit Taking - Potash Corp./Saskatchewan (USA) (Public, NYSE:POT)

POT took out PDH and extended 50%, printed a big hanging man, retested the highs but couldn't push through R2. The second hanging man, strategically placed at R2, provided a very good clue that POT was going to come into some profit taking.

SCO and BIIB were from the gapper focus list. BIIB was a coil and move back to ORH, followed by a long, almost painful, wait for the anticipated C&H to develop.

SCO was an ORBO with extension following the gap fill consolidation.

SLB, also from the gapper list, was a good intention for a H&S BO, but I missed the entry. Hope you got involved.

The key criteria for H&S tops are big volume on LS and Head and relatively little volume on the RS. SLB meets the criteria and delivers a fast trade - gap fill and perfect measured move - 100%

14 comments:

Susan said...

Took POT trade twice. First on the break of 3rd bar hanging man low (is the 3rd bar not a hanging man too?), got stopped out for a small loss. Re-entered again on the break of 2nd hanging man.

Seeing the variety of setups you take always reminds me one of Jim's post - Trading is in your DNA :D

Beautiful trades as always.

Susan

Susan said...

The 3rd bar was a hanging man. Missed that part in your post.

Jamie said...

Thanks Susan,

As I mentioned in yesterday's post, the markets were somewhat extended so shorting like stocks is a good strategy. Look for longs on pullbacks to support.

The first hanging man was too wide for me, the risk:reward ratio is less appealing on a wide stop and it also means I would have had to have a small share size. I use the highs as my stop and the PBL as my entry.

Sounds like you succeeded with the second entry. Congrats!

anarco said...

Regarding Susan's reference to Jim's quote. I was wondering if you can tell how much of your success is due to hard work and how much is due to "a natural ability."
Just curious about your take on this.
Cheers,

Jamie said...

Anarco,

When I first started trading in 2001, I had no trading abilities whatsoever. I had beginner's luck and a great curiosity to learn. I read many books on trading and technical analysis, and with each new book, I thought I understood everything, but each new book just gave me a little bit more information. In fact, I knew a little bit more, but there was a whole lot more that I didn't know or understand. It takes many years of experience to develop the trader's instinct.

Different trading strategies work better under different market conditions. Trading ranges like the one we are in now are the most difficult. A setup that works perfectly in trending markets may not provide optimal results in trading ranges and vice versa. As you gain the experience, you develop the trader's edge.

yr said...

Hi Jamie,
What does PBL stands for? Did you enter on break of hanging man low? Is that how you usually enter short for hanging man type trades? Thks

Jamie said...

Hi YR,

PBL stands for previous bar low. That's where I entered on the POT short. Generally speaking, with inside bars, I like to enter when the outside bar is taken out.

yr said...

Thanks Jamie. If the hanging man is not an inside bar, would you have entered on break of hanging man low then?

Do you confirm its a hanging man when next bar close below hanging man real body or below its low?

Jamie said...

YR,

Confirm HM with close below real body. HM foreshadows a reversal, if next candle confirms with bearish candle as opposed to offset like inverted hammer, then you can short sooner than later.

Golden Bear said...

Hi Jamie,

I was looking at Tyler's FWLT trade. It seemed to form a hanging man in 3rd bar/15 min. As you explained in the POT trade, I assume you probably would have skipped going short due to how wide the bar is. Can you offer your insight on why FWLT continued its uptrend after the 3rd bar hanging man (as well as the first hanging man in POT)? Also, I remember seeing something on X's site where the second bar is hammer like (http://photos1.blogger.com/hello/143/3008/1024/AMYLIN%20PHARMACEUTICALS%20INC%202%2027%202006%205%2020%2043%20PM.jpg) and resulted in continuation of uptrend. I'm getting a little confused on why that bar would not be considered hanging man as well. Thanks (and sorry for being long-winded).

PDT said...

Actually the bigger question should be how does one confidentially short a clearly uptrending stock like POT?

I clearly do not have the experience or intuition to recognize those situations.

Well done!

PDT said...

Golden Bear,

Even if one would decide to use the 3rd bar hanging man like bar in FWLT they would not have ever been filled because neither the hanging man bar itself or the previous bar low was never taken out.

Also if you look at a slightly larger timeframe you will see that $43.00 is a decent support/resistance area after last Wed. You can see after the initial BO of that there was a retest of that level and it held.. ie, old resistance is now support.

Just my 2 cents, thats all I can afford after trading :)

Jamie said...

Hi GB,

I'll cover Nison's guidelines for hanging man in more detail in tomorrow's post. This is a tricky pattern because it requires confirmation. Nison also mentions that the rally preceding the HM should show signs of losing steam. That's something we can confirm with an indicator such as volume or negative divergence of the RSI to a higher high.

Golden Bear said...

PDT and Jamie,

Thanks for taking the time to reply. I look forward to your post tomorrow, Jamie.