Monday, October 13, 2008

Retracement Trades - Morgan Stanley (Public, NYSE:MS)

The markets gapped up and quickly started to fade. When this happens I look for stocks that retrace 38% from the previous day low to the ORH. 38% Fib. retracement is a normal retracement in the regular ebb and flow of a trending stock. MS was the big news story this morning so I quickly jumped in as depicted on the 5 min. time frame below.

There were numerous plays like this today. I also traded DRYS and POT.

The QQQQs retraced much less than 38% and volume was thin on the gap up so I didn't initiate any trade in the morning. In hindsight, the first three bars on the 15 min. time frame look like a bull flag.

In early afternoon the Qs retraced 38% from the morning swing low to the swing high and started to reverse. I jumped in long as price broke above the 25% level. As it broke the base from the swing high, it had the feel of a C&H setup so I drew in my Fib. ext. lines. It stalled for a long while at the 38% ext. but eventually completed a perfect measured move which really took flight in last 45 minutes of the session.

Sometimes I trade the E-mini futures and other times the NASDAQ ETF. Why? When I have too many trades in play, I don't want to risk trading the E-Minis because it requires a lot of attention. Mistakes in the Qs are less costly.


Check out Trader-X's NASDAQ futures trade. Two different ways to trade this one. From the visuals, it looks both of our trades probably generated the same type of extension.

3 comments:

Day Tradr said...

Jamie,

Excellent trades.

How do you determine target in retracement trade? I entered the MS trade at the same point as your's. My target was the recent swing high. I got all out by the time it reached the swing high. :(

Also, how do you use trailing stops? After the stock moves in your favor, when do you move your stops? I am having problems with this, missing very good moves many times.

Jamie said...

Thanks Day Tradr,

I take a partial when price approached the ORH and wait to see how price reacts afterward. If it carves out a bearish candlestick pattern, I exit, but if it looks like it wants to consolidate and keep going, I try to stay in. I also look a potential resistance zones ahead of time. If there's strong resistance at or very near the ORH, I'll fold right away.

I use split stops as opposed to a full trailing stop. I leave the original stop (previous bar low, not entry bar low) on half, and trail a stop at each higher low for the balance. That means that if a stock breaks out and prints 3 green bars up and pauses to consolidate, I use the lowest of the consolidation bars as my stop after it prints a higher high and so on and so forth, until price approaches the preliminary target where I exit on market and cancel the prior stop. This is all done on the lower timeframe not the 15 min.

Day Tradr said...

Thanks Jamie. This is helpful.