Wednesday, August 27, 2008

Gapper Dummy Trade - Amylin Pharmaceuticals, Inc. (Public, NASDAQ:AMLN)

AMLN was a gapper short from a 3 pivot point base on the 1 minute time frame. Unfortunately, because of the distance from the down sloping 5 ema on the 15 min., it started to form a bullish base shortly after the first leg down, so I took a partial just in case. I closed the balance as price approached the 38% Fib. extension of the previous day high to the ORL as per Trader-X methodology.


AMGN set up a low risk short in the pivot area. I was targeting $22.00 but took a stop as price formed a bullish base on the 1 minute chart below. Since it didn't get close enough to the target, I wasn't expecting such a powerful retracement. In retrospect, the capitulation volume on the last leg down, foreshadowed the end of the move.


FLS was a continuation play off of yesterday's reversal. There's NR7 in play on 15 min. consolidation and a 3 PP base on lower time frame.

14 comments:

Tomer said...

I just admire the way you trade, I'm doing this for a long time and I couldn't trade like that just yet.

Again thanks for sharing your charts :)

Tomer

Rick said...

I was this close to trading AMLN this morning. I liked how it looked good on the 15 minute (NRIBs off of WRB), 5 minute B&B or sloppy cup & handle, negative news that would be difficult to spin (4 deaths from their drug), and I felt the 20 dollar level would serve as a magnet. Only problem was my Internet went down in the morning and there was a Time Warner truck outside. The one thing that would have kept me from the trade though was the bullishness at the time. Do you essentially disregard market direction when trading these gappers? I have a feeling that's why this one didn't break down with total conviction right at first.

I've noticed how you've been trading gappers more in this low volume environment; it's always interesting to see how you adapt. Instead of adapting, I have basically been avoiding trading this week, but I'm going to look more closely at gappers now.

Am I Bald? said...

Jamie,

Thanks for checking out my trades and for the pointers. I have found that recently I have been getting in on a lot of false moves, so I have been waiting for a volume confirmation of breakout on the 15 minute chart and then enter on the 1 minute chart.

This way I have been getting in after the initial thrust up (or down) and making my stops quite a bit lower. All day today I never had a stop over $.10, which allows me to buy more shares.

What do you think about this approach? It only works sometimes and as you can see on my trades today I have still been getting stopped out and missing the initial move.

Your input is always appreciated.

Thanks,
Tyler

Jamie said...

Thanks Tomer, appreciate your feedback.

Jamie said...

Rick,

Sorry about your internet, especially on the best day of the week.

I usually know within the first 45 - 60 minutes which gapper I will focus on. Basically, I look for stocks ripping in post/pre-market. I disregard market direction for gappers especially earnings gaps and bad/good news gaps as these generally trade on their own volition. I prefer to trade widely held names.

AMLN did try and change direction. This could be due to the fact that it had sold off quite a bit in post market yesterday. The 5 ema was obviously lagging price so I wasn't surprised, but the story is so powerful that I knew it would ultimately break big. In fact, the biotech sector took quite a dip in sympathy - ALKS, CELG, AMGN, CEPH, BIIB ELN.

Jamie said...

Tyler,

I was wondering what that was all about. The problem with waiting for volume to come in is the late entry. After the initial thrust price consolidates and/or retests the base, so it is almost inevitable that the trade will go negative before going positive.

Price and volume contraction lead to expansion, so I prefer to get in on the BO. A well formed 3 PP base with higher lows for longs and lower highs for shorts is the easiest measure of a solid base. By its nature, this type base encompasses contraction and has a higher probability for expansion.

If price makes a big thrust in one direction, it needs a lot of time to consolidate the initial move before it can make an equally wide continuation move.

Rick said...

Thanks Jamie. When I start trading larger size I'll definitely invest in a backup DSL connection. I was reading through a recent motherboard manual, and network teaming of multiple network ports is a pretty common feature nowadays. This allows for load balancing / fail over without buying an expensive router.

TL said...

Hi Jamie,

You said AMLN was a 3 pivot point base on the 1 minute. It looks like a C&H after the first leg down. What's the difference between 3 pivot point base and C&H?

Thanks
TL

Jamie said...

Rick,

Not sure how all that works, but have had serious problems with cable in the past. Now, my cable service provider has a dial-up that I can use when service fails. Dial-up is a lot faster now, than it used to be.

Jamie said...

TL,

Good observation. I usually trade C&H on longer time frame 5 or 15 min. Both C&H and 3 PP base have three pivots and price/volume contraction ahead of the breakout. So they are very similar.

Tom T. said...

Jamie - I was hoping you could point me to a prior post or another resource that talks about the 3 pivot point trade - from what I can tell is you plot a line that runs through (let's take a long trade) a high point where price advances then declines and then you see if price crosses and retreats from that point two more times, entering a break of the line the 3rd time? I notice that you pick the point close to the 10:05 time frame - I assume the pivot lines you plot are not based on true pivot points from the way you defined them in your welcome to WSW blog post but you are talking about pivot points in the sense of advance and reversal points where price is tested roughly twice and then you enter on the 3rd break of that testing. This is what I am gathering since I am unaware of this type of trade outside your blog - and forgive me but I do not think it has been explained in any detail yet - my related question is I assume you do not run a separate scan for the 3PP trades but instead apply this setup criteria to gappers and your watchlist in looking for potential trades, correct?

Jamie said...

Tom,

I developed this 3 PP base for wide gaps specifically. Wide gaps tend to break while the 5 period ema is still lagging and it was always difficult to gauge the best entry point when trading strictly from a 15 minute chart. I will elaborate all of the attributes of the setup I look for in tonight's gapper post for MBI. I have discussed this setup in more detail in the past and I will link those examples to the MBI post to give readers a chance to review a few charts. Then I'll add it to the Key Posts section.

Day Tradr said...

I admire you not only for your trading abilities but the time and effort you take to answer each and every comment so gracefully. Hats off to you Jamie.

Jamie said...

Day Tradr,

Thanks for the kind words.