The Art of the Chart

Traded two breakouts for today. The first was ARO. It had a nice daily, but was very extended intraday when I entered and I got stopped out for a loss. What was I thinking?

The other one was HRBN. It gapped up slightly to a new 20 day high and offered a great intraday pattern. Something Toni Hansen calls a D-pattern. I entered right above that pattern. Even on an otherwise boring day in the markets there are really nice breakouts during earnings season. Here is the trade…

Nice intraday pattern

• Slight gap up and new 20 day high on earnings news
• Great daily chart (fresh breakout after consolidation, no resistance near)
• Great intradaypattern (D-pattern)
• Entry slightly above ideal level @ 20.61 SL@20.45
• First target at equal move: 21.18
• Second half sold 5 minutes before the close
• Result: 2.7 + 3.9/2= 3,3 R
• Result for the day 2.3R

Had other business to attend to so no trades today. Does not look like I missed much.

Two wave correction off the highs after an earnings gap

• market gapped down big but found support on the rising sma 20 on the daily chart
• the low of the day was set in the first 30 minutes
• I could find no short trades I liked, but still traded PALM short for a loss
• There were plenty of opportunities on the long side but a good entry was important
• SMSI I found on the new 4 wk high scans just in time to enter at the right time
• The second slower wave down on the 5 min chart bounced off the rising sma 20
• Pace was ideal
• Stock is thin but trading on heavy volume because of good earnings news
• Entry was before it broke the high of the day for reduced risk
• It moved up right away but stalled after 10 minutes
• Put the stop to breakeven after the bounce on the rising sma 20/5
• Entry was @ 8.66, initial SL at 8.56.  Risk 10 ct.
• Target was around 9 but by then it was moving pretty good so I dedided to trail behind the 5 min bars
• Closed half below the inside 5 min bar at the top
• Closed the rest 5 minutes before the close. Exit prices: 9.15 and 9.14
• RW/R=48/10 ct=4.8R
• result for the day: 4.8-1.1=3.7R

Did three trades today. Shorted PCLN early on the break of the 60 min bear flag. It moved very nice but failed to hit my first target. This was a higher risk trade because of the bullish daily chart so I set the stop at breakeven when the market seemed to bounce.PCLN could be worth watching for a long swing as it could bounce some more and resume its daily uptrend. All depending on what the market will do the coming days.

The other two trades were great winners APKT did 3.5R and DLTR 5.8R for a total of 9.3R.

• really, really nice daily chart
• nice first move out of the open
• 1 min pace developing positive
• entry was okay, but the later entry after the flush around 17:30 would have been better
• don’t mess too much with the initial stop, wait for the first breakout of the range
• Patience was rewarded handsomely
• risk: 13 ct; reward: 46 ct; RW/R: 3.5R

• Great daily and weekly chart, nice gap out of consolidation
• Gap on good earnings news
• Missed the first entry, though I had it on my watchlist at the time
• Kept checking back for a possible new entry
• Nice 5 min bull flag was the setup
• Entry was just before the break of the flag after the flush move and the tiny 1 min phoenix (Toni Hansen)
• Based the stop on the 1 min setup, this often works if the entry is good, eg not too early like APKT
• First target was the 5 min bull flag equal move.
• Second half was closed when  the trailing 5 min swing stop was hit.
• Risk 15  ct; reward 87 ct; RW/R: 5.8R.

It was a hard day to read the market, because it moved so little and erratically, at least to me. The market sold off from the open but there was no follow through after that first move (consisting of 2 waves down).

Instead momentum turned slowly positive and during lunch hour I found a few setups. Ended up taking DNDN (I should have passed on that one) and BIDU. DNDN was a loser, and BIDU did not meet my target but gave a nice result despite that.

• Though very thin the 1 min base had great pace development
• After the initial move it came back hard but according to my rule I have to sit the first reaction out before I can update the stop or exit
• My target was the morning high, but it did not make that.
• Got stopped out on the second leg off that 1 min correction
• Held stops very tight because of this choppy market
• entry 505.50, stop: 504.90, exit: 507.20
• Result: 2.8R

• difficult market todayI liked
• strong first move out of the open
• stalled near previous days high
• sold off pretty strong
• came back strong into the high
• then fell slowly into the rising sma 20/5
• I really like to buy these second bounce in a range trades before the breakout
• Did not see it in time to buy it above the 5 min bar bouncing off the sma 20
• It almost looked like it would be a scratch around noon, just missed the stop
• Hit target after 14:00
• Closed remaining 5 min before the close
• Risk: 15 ct. Reward: 35 ct + 46 ct = 40,5 ct
• 2.7R

• breakout to high (not really my favorite, but I thought this one was worth a try
• good flush move on the 5 min chart into the rising sma 20/5
• second test of resistance was followed by a weaker downmove
• second bounce in range on the rising sma 20/5 could have been a better entry (smaller risk and better reward)
• I missed that optimal entry
• closed half after equal move had been hit
• trailed the rest below sma 20/5 pivots
• closed other half 5 minutes before the close
• risk: 17 ct reward: 34 and 47 ct
• rw/r  40,5/17=2.38 R

• RIMM
• Was on list because of strong performance last days
• Bounced off previous low after a steep sell off from the open
• During the morning pace had turned more positive
• When I spotted it it was building the handle of the shallow cup
• Since it had a good daily I thought it might go to equal move or sma 200/5m depending on momentum
• Had a nice 5 min flush hammer in the handle
• Entered after the break of the trendline
• Missed the order at first but price came back to my entry level (I did not want to chase it because of the resistance being so relatively close)
• Closed half at the sma 200/5 (slightly beyong equal move, but pace was soo good by now I was willing to take the risk)
• Set the stop to breakeven on the rest.
• Closed remaining 5 minutes before the close
• Daily looks not bad, could have held on to a few
• Entry 70.90, risk 18 ct; reward 35 and 47 ct.
• RW/R: 41:18=2.25R

Focus on the stuff that really moves!

It is that simple.

Most successful trading strategies are based on that. Technical analysis works best on stuff that runs up or down faster than the rest. The stocks that run up real hard also go down best.

Use top gainers/losers, gaps, unusual volume, whatsoever. It helps to check market direction and use relative strength. Stocks that hold up well during market corrections are usually good candidates to buy once the market reverses. It is best to wait for a consolidation or a pullback before entering.

For day trades the reason of the move is not that important, but if you want to hold partials for a swing go for earning surprises, big orders. Upgrades and takeovers usually don’t work beyond the day of the move…

It was a hard day to trade, with the market gapping up a tiny bit but falling for close to half an hour. The SP500 formed a 1 min range (I actually look at the SPY) that seemed to favor the upside, so that was  was looking for a nice long setup. I found two that I traded, AMP was the best one and also showing the most promise.

AMP gapped up big and held up well when the market was falling. It bounced back up very strongly around 10:00 AM and then formed a beautiful 1 minute base close to the rising SMA 20 on the 5 min chart). I entered with a tight stop, took half off at first 1 min resistance and was aiming for high of day for the rest. It offered two new entries that I passed on (see the 5 min chart for that) and when price approached high of day and 37.00 round number I closed the rest. As can be seen, the second half offered a nice R/RW, better than 4.

While I look for 15 or even 30 minute pullbacks in strong stocks I use the smaller timeframes to time my entry and to set my stop. This greatly improves risk/reward. This works best for me  if entering a long near support or a short near resistance.

ISRG proved to be a nice example of this technique…

• Alert trendline is horizontal dotted gray line
• Blue line is entry
• first diagonal red line is first target
• 2nd red diagonal is exit (I always exit day trades 5 min before market close)
• horizontal red lines are initial stop and updated stop (below 1 min HnS)
• The black line is the simple moving average 1 min 20 period
• The grey line is the 5 min 20 period moving average, acting as support.
• Click on the chart for an overview of what I look at.