Thursday, March 19, 2009

Gapper / Cup & Handle

The lower $USD was a good opportunity to focus on lagging commodities, steel and coal, or as some people are calling it, the reflation trade.

X gapped up, carved a couple of inside bars, and broke out of its base with a fast move to the 50% fib. extension.

ACI also ripped higher after gapping up, but I caught the secondary play, after it consolidated the first leg, or the C&H breakout. As you can see from the chart, it was a slow, but steady move.

SOHU gapped lower and carved out an inverse C&H. I especially liked the price/volume contraction at the base of the round $ number just before the BO. Ultimately, I was expecting a wider extension from such a perfect base, but it didn't even reach the 38% FE of the ORH to the base. I thought it might form a mini bear flag and continue but it didn't.

The finer details of entry and exits are highlighted on the 1 minute chart below. The straight blue lines are the initial base, followed by consolidation points on the way down. See how the blue lines come into play as price retraces and then begins to fall down again.

NKE was an earnings gap that looked way too choppy in the early going, but eventually, it carved out a C&H base. The second BO bar, was a shooting star and I moved my stop just pennies below the base and BE. Surprisingly, after such a whip saw start, it rallied up to the next $ level and the 38% FE for a fast trade to cap the day.


anarco said...

Cool trading Jamie!
I have a question regarding stock selection, and what I mean with that is the process of selecting charts that have the most potential for success. I typically start my morning with my WL and a few other stocks (gapers, earning stocks, etc) and as I go through the charts, I keep narrowing down the ones I want to focus on. But many times I find myself not making the most optimal selection and, of course, I realize that after I am already in the trade. So I end up babysitting a position that only wastes my time. Although I am getting better at dumping quickly what is not working or is wasting time, I am still fine-tuning the selection process. So my question is: do you feel that making “good picks” is simply a matter of gaining more experience? Or do you feel there are other factors to consider? For example, do you find that the action in the daily chart (previous day/s action) is a deciding factor?
Thanks in advance and I hope this makes sense!

Ashish said...

Hi Jamie,

Regarding u'r US Steel trade, I was wondering if you could comment on why u chose the low of the Fibonacci range as the PDL rather than a more important low of a day earlier.


Jamie said...

Thanks Anarco,

The first 6 months of a new bull market are the best trading with the strongest TA, so you want to have a good core WL, and yes you should review the WL dailies to plan the next day's trades. Review dailies for obvious B&B setups as well as candlestick reversal patterns and NRBs.

Experience is at least 50%, the rest is planning and rules.

Jamie said...

Good question Ashish,

Placing the fibs from reaction low is for stocks that retrace. After the second bar completed, it appeared as though there would be no retracement. X was consolidating the gap through time as opposed to price, so I prefer to place fibs. as per traditional (old) Trader-X guideline for gaps.