Thursday, August 17, 2006

Trade of the Day - Research In Motion NASDAQ (RIMM)

No, this is not a repeat of yesterday, although the entry is exactly the same. Long RIMM on a break of the pre-market high. Notice how the pre-market high was exactly $79.00 and then price came back in to fill the entire gap before the market opened. At 9:30 price took off on huge volume taking out $79.00 on the first wide range bar. The second bar (doji) observed $79.00 (pre-market resistance) as support. Shortly after 10:00, I moved my stop just 10 cents below break-even. This was a very orderly trade and easy to manage. Notice how there is hardly no overlap of the real bodies of the candlesticks as price moves up. Around 1:00, RIMM started consolidating and formed a small series of lower highs. This was a cue to tighten my stop to $80.70.

In the afternoon, price came back in to test the $79.00 pivot point. Notice how the low of both the 2:30 and the 2:45 candlestick is exactly $79.00. Steve Nison calls this a tweezer bottom candlestick reversal pattern. Although rare, I've found it to be very reliable. So, I went long as price took out the close of the second tweezer stick and exited the position at the end of the session.

AMD gapped up on a Citigroup upgrade. The first bar closed on its high and as soon as the second bar showed continuation, I went long. I took my exit shortly after AMD made a lower high. This is a classic Trader-X type trade. It was also orderly and easy to manage.

I also traded LLTC from last nights's watch list as soon as price took out yesterday's high. A little choppy but profitable just the same. However, the target was not reached. PAYX was invalidated on the open because it gapped down.


AJ said...

Hi Jamie,
There are a lot of traders who wait till 10am to make their trades. I've noticed that you set your trades in the pre-market and could get filled at market open. What are your thoughts abt trading right away vs waiting till 10 or later to trade?

Jamie said...

Hi AJ,

Trading the open is risker but, assuming the market has direction, the biggest moves generally come in the first half hour and last half hour of the trading day. If the market is stuck in a trading range or has no direction, the risk of trading the open is much less compelling. If you trade the open, you have to have an exit strategy mapped out ahead of time.

Trading the open works well with the NASDAQ, however, I don't recommend it for the NYSE. By the same token, I use real stops when trading the NASDAQ but I use mental stops when trading the NYSE. Electronic trading is much more efficient that specialist trading.

I don't recommend that you trade the open unless you have a strong conviction about your setup. Having said that, there's nothing wrong with scaling into your position and thereby catching part of the open.

Good Trading!