Day Trades - Potash Corp./Saskatchewan (USA) (Public, NYSE:POT)

Yesterday in the comments to the prior AMZN post, I mentioned a handful of stocks on my focus list. POT was on the list. It was also a long pick in the HCPG newsletter last night. Hope you guys caught this one today.

On the daily we see 2 NRIBs at the base $105.00. Today it was a runner.

The AMZN trade below is from yesterday. Early strength did not extend after the retest of the base. Eventually, it carved out a 3 PP base with NR7 trigger bar for a gap fill. AMZN was downgraded today and traded lock step with the retail sector XRT - leading the laggards on weak retail sales data.

Trading Key Support/Resistance Levels

POT gapped down and carved out a wide range bearish stick. Place the Fib. lines from the previous day high to the ORL or the key support level as I did here. $80.00 is a psychologically significant round number and was a key support level on Thursday's gap down as price consolidated at that level for an hour before filling the gap.

Look for confirmation on the lower timeframe as I did on the 5 min. which showed a weak open followed by a sideways bull/bear battle at the S2 level (red dotted line). When it became obvious the bears were winning, I jumped in.


SRS was a gapper which saw ripping on the TI scanner in early trade. Price retraced to a key support level just on the edge of the R-zone. This level was confirmed on the 5 min. which showed price holding and reversing at R1 with support from the rising 20 EMA. I placed my Fib lines from the ORL to the early swing high because this ETF broke resistance on Friday afternoon and setting them from PDL to ORH could result in an overly optimistic target.

The NASDAQ futures trade is not as obvious, so it's important to wait for a meaningful signal. In this case we had two inside bars (NR7) on declining volume - price/volume contraction ahead of expansion.

Click on charts for larger view.

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.

Gapper Dummy Trade - The Boeing Company (Public, NYSE:BA)

BA was downgraded to sell by GS this morning. A sell rating from the king of Wall St. Broker/dealers is deadly. Traded this on the 5 minute chart as it carved out two IBs at the base of the ORL. I tightened the stop when the second bar printed a green hammer. Price can quickly reverse from the early reaction low and I don't like the first trade of the day to be a loser. I tightened the stop again when price printed a lower low at the blue line segment. My target was the round number $70.00 and it lined up fairly well with the 38% Fib. extension of the previous day high to the ORL as depicted on the 15 min. time frame below.

How I DayTrade calls this setup Gap & Go.

Short Trades - LEH, OXY, VLO

As I mentioned last night, LEH closed weak yesterday and could offer a carryover trade. That's exactly what happened. The first 15 min. bar was a wide, red hanging man. Just pick a spot. Also a second trade presented itself when the markets sold off.

OXY and VLO executed at the same time. OXY had the better setup because the 50 SMA was taken out on the BO. VLO paused when it hit the 50, losing some momentum. VLO observed support, OXY didn't -very weak - closed on its lows on a capitulation-like volume spike.


I missed the HCPG pick POT. Couldn't really find a spot at $210.00 and then missed the setup at $211.00. Some of my longs were lazy and sluggish - CTSH, and HUM. Although the market took out the declining 50 SMA early in the day, it had no follow through. It couldn't notch a higher high, and eventually came back to the 50. At that point it was time to look for low risk shorts as the market consolidated before breaking down.

Dummy Trades - Follow the Market

Today I tried to stay in tune with the market as much as possible instead of putting my personal bias to work on the short side. As you can see from the E mini NASDAQ futures chart above, the easy money in the early going was on the short side. We gapped up and retraced 62% of the move from yesterday's low to the ORH. After that it was back filling until the late session rally back up to yesterday's highs.

My first trade was ESRX break of inside bar. Cover as price retests yesterday's low.

The next trade was LEH. This time, I tried to get in as close as possible to the whole $ number because it lined up with yesterday's afternoon base. This gave me a tighter stop as there was no IB anyway. I took a partial as price fell into the next level base from yesterday and was stopped out on the balance.

HANS was a break of 2 IBs . Small move again today but less chop. Maybe the third trade will be the charm as the daily chart is still lining up for a bear flag BO.

I traded exclusively my own WL today, except SNDA which was a carryover gapper from yesterday. This was an inverse C&H pattern which extended the full 100%. I took a partial after 3 consecutive WRBs.

GRMN has been in rally mode for several days and I finally decided to join in. I entered on a base within the bigger C&H pattern. I exited at the 100% Fib. extension level thinking that was the end of the move. The 100% level was just pennies away from the daily 50 SMA and I was sure that it would provide resistance as it hasn't been touched since December 2007. Yeah, sometimes I over analyze. In hindsight, GRMN had just come out of a four bar consolidation, so it should have been good for 3 WRBs as opposed to the one that I exited on. Next time I'll partial out instead of anticipating.



DRYS - 2 NRIB s- Took a partial after 1 pt. as price came into resistance and stopped out on the balance.

Dummy Gapper Trades - (Public, NYSE:NT) Bear Flag; (Public, NASDAQ:JAVA) Break of ORL 2 NRIBs

NT gapped up but immediately succumbed to weakness. It made a decisive move lower, briefly found support at the previous day high and formed a bear flag. Short after price closes below support of the black line and cover at S2 on a huge volume spike.

JAVA was a more textbook dummy setup (Trader-X style). I saw two NRIBs just above the base of the ORL. I scaled in on the break of the NRIBs and loaded up on the break of the ORL. Now, I know that the down sloping 5 period SMA was a little distance from the execution but I felt that the 2 NRIBs made up for that caveat.

Dummy Trade of the Day - Garmin Ltd. (Public, NASDAQ:GRMN)

AMZN, from the WL breached its trend line on the OR. The OR closed below the trend line so I decided to short as soon as the OR was taken out. My stop was S1, partial at S2 and close at support (blue line). Sweet.

GARM took out yesterday's gap down support on the OR, but I was too busy with AMZN. Luckily it found support at S2 and carved out a beautiful, dummy bear flag with 2 NRIBs (NR7 trigger bar). Partial out on breach of hammer high. Watch S2 for potential reversal. S2 holds on a closing basis. I had a target of $45.00 based on long term support. Close enough.

ACI won't go down. Dummy flag on 5 minute. Support at $51.00 breached but Crude inventories out at 10:30 were surprising on the low side triggering a swift reversal.

Dummy Trade of the Day - Hansen Natural Corporation (Public, NASDAQ:HANS)

It was a very choppy session and I noticed several failures and mediocre extensions. My first trade was the best in that it reached 100% Fib extension of the ORL to the base. The first chart of HANS is the 15 min. and you can see 2 IBs, the second of which is NR7 in price only (volume does not contract). That looks like a mini triangle on the 15 min., but on the 5 min. below we see a shallow retracement from the base and nice , low risk setup where all of the MAs converge.


Originally, I thought GRMN would set up a bearish flag on the retest of S2 (red dotted line) as price moved towards the down sloping 5 period EMA. But instead it continued to rally off of its V bottom. Eventually, it paused at the base of the high of 2/15 and I traded it like a C&H pattern. It was very slow to get going, and then after all that, it didn't extend the full 100%.

Related Posts: NRIBs Revisited
Inside Bars

Cup & Handle - Arch Coal, Inc. (Public, NYSE:ACI)

ACI formed a high quality C&H pattern. On the 15 min. timeframe we see and orderly pattern with 2 IBs on declining volume. On the 5 min. we get a better view of the price and volume contraction as the handle forms.

The base of the handle sets up at P and the whole $ number. The target is a measured move or 100% Fib. extension from the low of the cup to the base. The extension is perfect with lots of volume supporting the move, so I decide to partial out at the target and hold the balance for a bigger move. I tighten my stop below the last WRB on the 5 min. timeframe and exit the balance as price approaches R1.

Inverted Cup & Handle - Express Scripts, Inc. (Public, NASDAQ: ESRX)

ESRX from the watch list, formed an inverted C&H pattern around 1:00 EST. The pattern became interesting during lunch when ESRX carved out 2 NRIBs on declining volume. This was during the handle formation which eventually formed a shallow, inverted, rounded base. The key success factor in the C&H pattern is price and volume contraction during the handle formation. Also note that the 2nd IB is NR7.

Sell stop on a break of the C&H base. Partial at 100% Fib. extension from the high of the cup to the base. Friday was a race to the bottom so I decided to hold some to see if I could get more than the typical measured move for this pattern. ESRX extended to 138% before staging a 62% retracement of the last leg down.

Dummy Trade of the Day - Research In Motion Limited (USA) (NASDAQ: RIMM)

RIMM Trilogy

The first chart is the daily. As I mentioned yesterday, after testing the lower pivot point, I expected RIMM to bounce.

Well, nothing comes easy in this market, so it took three trades to get this thing off the ground, but at the EOD we have a tweezer bottom reversal plus a bullish engulfing on the daily, so we are well positioned to retest the upper PP in the near-term. The only disappointment on the daily is the volume. It really felt like a lot more volume, especially in the last hour.

The first trade came shortly after RIMM retested yesterday's low and held. The TI scanner flagged 4/15 as NR7 and it was an IB, so I took a long on break of the previous IB. I set my stop on the 5 min. timeframe. Price retested the ORH and retraced sharply, so I exited the trade.

The second trade was a C&H pattern on the 5 minute timeframe. My target was the usual 100% Fib. extension from the low of the cup to the base of the handle. It failed to extend fully because of Fed speak.

At some point, IB crashed and I had to use the IB Web Trader. I really felt strongly that we would bounce before the end of the session, however, the choppiness intraday and broker problems were more than a little frustrating. Finally, RIMM carved out a tweezer bottom which set up the third trade.

My initial target was yesterday's ORH, but I took a partial after three successive WRBs and moved my stop up to the midday swing high, after which I moved it below the shooting star. Sweet!

Mail Bag - DryShips Inc. (Public, NASDAQ:DRYS)

A reader submitted this trade from Friday as depicted in the chart below. He was targeting S1 on break of 2 inside bars (NR7). "I was in the money but didn't book any hoping that it would at least test S1 at 82.50. I have a hard time telling when to book profit or let it trade. Your advice is always greatly appreciated."

The chart above maps out the areas of support and resistance. There's no obvious PP that stands out, but it's important to know where S/R levels are as well as the intraday PPs because they don't always line up.

In the early going, support turned into resistance as price based below, but could not take back the upper blue line. Two inside bars (NR7) is a common setup on this blog, but it is important to distinguish 2 inside versus NRIBs. These are not narrow range bars, even the NR7 bar is not narrow, but given what has preceded, it is the narrowest of the last seven bars. NRIBs are more powerful than regular inside bars.

The last chart is a 5 minute time frame and the point I want to highlight here is the wide swings in price leading into the trade. This is not a high quality setup despite the inside bars. After breaking out, DRYS carves out three consecutive 5 min. red bars with lower shadows, the third of which is a hammer-like. The high of the hammer bar is a whole number -$84.00. After taking out $84.00 by almost 50 cents, you have to protect that whole dollar level and plan to book some profits if the hammer initiates a reversal.

Narrow Range Inside Bars (NRIB) Revisited

A reader submits:

Assuming all things constant and taking this illustration very simply (ignoring PP, MA, candlestick, etc), I appreciate your advice on whether my entry (dotted blue) would be correct. I also have 2 scenarios which I don't know how to deal with.

Just to clarify, when you talk about 2 NRIBs, does the 2nd NRIB have to be inside the 1st NRIB as well?




The two easiest scenarios to address are i) and v). These are excellent setups assuming that price is above and, in very close proximity to the 5 period ema. It's also of utmost importance that volume contracts during the inside bars. Refer to my initial post on the topic. Item v) addresses the last point in that the second IB does not have to be inside the first.

Items ii) and iii) are a little more subjective and may require more confirmation. For example, if ii) is part of a flat base, I would wait until price takes out the first bar or the shadows as may be the case. If bar 3 is red, I wouldn't take the entry off of this time frame. I would drill down and look for a candlestick reversal pattern on a lower time frame. The RIMM example below, although not exactly as depicted in the chart above is somewhat similar and makes the point.

The first chart is the 15 min. and the second is the 5. See how the lower timeframe provides clarity as to what is really going on, whereas the 15 minute chart is somewhat ambiguous.




Item iii) is a good example of a triangle formation and if that is in fact what it looks like on the lower time frame, then this is the correct entry. If bar 1 is the OR and there is no resistance above including an intra day PP, then I would trade it as presented in the example. The only caveat is that until the ORH is taken out, there's always a risk. So if the ORH is only pennies away, I sometimes wait for confirmation. On the other hand, if the 2nd IB is NR7, the setup becomes all that more powerful and may not require confirmation. If you take the entry as presented, you generally have enough room to exit at or near BE if the pattern fails. It's a judgment call and you will determine which entry suits your trading style best over time.

Item vi) is a bullish flag or flag pole and should be entered on break of the flag. When drawing the line segment for the flag make sure to include the upper shadows.

Item iv) is subjective again. I often wait until price takes out bar 1 because the 5 period ema is too far away and I'm waiting for it to catch up to price. This pattern often comes up in the handle portion of the C&H pattern, and here again, I wait until price takes out bar 1. That's my personal preference and it saves me from taking trades that don't pan out, or reverse just prior to breaking out.

Here is an example of a trade with RMBS that I took a while back which depicts the same formation as item iv). As you can see from the first 15 minute chart, the 5 period ema was still quite a distance from price, so I set my buy stop order above the outside bar.




If the inside bars set up at the base of a PP or at a resistance level (for long entries as depicted above), a successful break will generally result in a big move. The best setups are the ones that give consecutive higher lows, so in that respect I prefer i), iii), and v), everything else being equal.

MarketClub Education Page Click Here

Dummy Trade of the Day - TBS International Limited (Public, NASDAQ:TBSI)

TBSI set up a NRIB (NR7) at the base of the ORH in close proximity to the rising 5 period ema. I took a partial at R1 and exited the balance as price approached the whole $ number $36.00.

NVDA carved out 2 inside bars on declining volume at the base of yesterday's pivot high. Long on a break of the second bar high. Sometimes when I trade lower dollar value stocks I lose perspective with respect to candlestick range. The second inside bar has a range of 20 cents and I'm thinking NRIB, but it's not. The point is a NRIB is much more powerful than a regular inside bar, everything else being equal.

Eventually NVDA carved out a C&H pattern and I used the Fib extension of the ORL to the base of the handle to gauge my target. Again, after the C&H BO, it prints 3 NRBs as the 5 ema catches up to price and that seems to provide the coiled spring effect to boost this thing into price expansion. I took a partial as price approached R2 and exited the balance near the 100% Fib. extension.

Dummy Gapper Trade of the Day - Rambus Inc. (Public, NASDAQ:RMBS)

RMBS, from the Briefing.com gapper list was already 62% extended (Fibonacci) from the previous day low to ORH by the time it carved out 2 NRIBs. But this being RMBS, 62% is not a big deal especially when $10 billion in royalties is involved. The second inside bar, was a bullish hammer so I entered long on a break of the outside bar. My preliminary concern was the January reaction high (thin blue line), but it succumbed rather easily. My next target was the daily pivot (thick blue line) which, as highlighted in the daily timeframe, was significant resistance in Oct. -Nov. 2007. It also happens to be a nice round $ number. As soon as price approached the target, I exited the trade.

Notice the euphoric volume spikes on the last two green sticks before price retraces. Also notice how the daily pivot holds as resistance on two tests in the afternoon.

On the daily timeframe, when price finally broke through the PP in early December, it printed a WRB on higher volume. That's the magic of the daily PP BO.


BTW, I'm adding RMBS to the WL.