The Art of the Chart

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.

If the trend is up and momentum in the range is positive, the second bounce in a range is often a better entry then to wait for the breakout because it can improve r/rw by a factor 2 to 4

 

I used to buy when a stock moves up and sell when it goes down. It took me a long time to realise that this might feel nice, but really does hurt profit potential.  Toni Hansen showed me the importance of momentum.  IPG was a strong mover in the morning but came off the highs.  On the 15 min timeframe I saw three bars up, and three bars down, downside momentum slower then upside. Timing is everything and if there is a three bar move I only start looking to buy after it has reacted for at least the same amount of time.  When price is near support, I start looking for a change in momentum (or pace as Toni calls it) on a smaller timeframe, often the 1 min chart. I try to enter as close to support as possible. It improves r/rw tremendously. You might think by entering early that a flush move is more likely, but often the opposite it true. Click on the chart to see the complete marketview I look at.

Many traders would call today a trend day since it started at one end of the range and closed in the other. From the sound of it you would think that you can make a lot of money on these days, yet usually I do worse on those days. Probably because I keep feeling I don’t want to buy the top. 

While today might be considered a trend day, it was hard to trade because it was very choppy. 

I was late becuase of other business then had a hard time finding something I liked until I spottend HUN, right before it started its final move. 

My entry was at 11.90, with a stop at 11.65 and I closed all at 12.50, a nice reward, but more importantly the number resistance area (12.5) and dialy sma 50 resistance. Not much but it was the best I could do today and it was a nice setup.

 

The market opened with a big down gap. Gaps usually fill… sometime. All morning long I had this feeling that it really was too late to short but too early to go long. However, over noon the pace of the market shifted on the 5 and 15 min charts and CME (on the list of strong -dollar gainer – stocks this morning) showed this strange phenomenan. I have noticed this before, you see a pattern on a larger timeframe and a little later you see (sometimes exactly) the same pattern on a smaller timeframe. 

In this case the smaller pattern was actually part of the bigger pattern. I traded the 5 min chart on this, but this pattern was part of a 30 min pattern. Some people call this a cup and handle. Key is that there are two tests of a horizontal line, but after the second test, price pulls back notably slower than the move into resistance. In this case it bounced of 5 min sma 20 support (you could argue if a sma is actually support, but I’d like to think so) and that was my entry. 

By getting in early (before the actual break) the r/rw often doubles or tripples while the odds of a failure hardly increase. Key in this pattern is that momentum of the second correction in the range is slower than the first. 

I closed 2/3 at 2R and held on to the rest until 5 min before the close. Around 3R result.

I expected an upday for today, since the daily charts in the indices were pretty extendend to the downside and yesterday was a consolidation day with some positive pace development in the 60 min ranges. 

The indices gapped up slightly and broke the morning high. At last, I could go look for a few nice longs. 

The bad thing was that the market started strong lost steam along the way. It was harder to find nice stuff then I expected. But I found two trades that turned out nice.

 

 

I could not find a lot in the gainers/losers list, but there was a gapper that made it to my list because of the great daily. 

 

Though I did expect the market to bounce strongly and I was not really looking for short this one was too good to pass up, but I did not expect this result. 

Covered 2/3 on first target and the rest just above the the green 15 min bar, fourth before market close.  In hindsight I should have kept all until the close, but I try to make it a habit in this market to take most (2/3) off at around 2R.

It was hard to find decent setups again, but this one was nice. 

A great pattern, the avalanche, took the price for a nice ride. 2R seems almost ridiculous to cover most of the short… but usually it works very well!

 

I don’t like downtrending markets, but I might was well get used to it since it looks it is going to stay like that for a while to come.

Did one trade yesterday, and could not find a lot today. Must be because I kept looking for longs, and missed most of the nice short setups that were presented all day.

Oh well, I will try and do better tomorrow!

Tired from trading? No, not at all, just very busy, too busy to post.
I intend to start posting again as soon as possible.

The 30 min dummy setup caught my eye. I zoomed in on the 1 min chart and found a 2 min base with a double bottom with a slightly lower second low.

This slightly lower low can often trigger the up move. At the same time the market (QQQQ’s in this case) bounced from a sort of D-pattern. I entered CHL at the break of the 2 min range. I got a bit of positive slippage and was in at 87.48. First target was 88.50 but I entered a limit order for half at 88.45.

I put the stop on the remaining half at breakeven, and after a new high the stop was set pretty wide below the reaction low, 87.87. Over dinner it just got hit (87.85 was the low) .

The worst part however was not the stop getting hit but not getting in again when again it made a sort of reverse H&S on 2 min chart and started another up leg…

I did notice it in time but – wanting to protect the nice profit I already had – skipped it for no good reason. Good reasons being reasons you could explain to another trader without feeling stupid…

BRCM gapped up big time, moved nicely off the opening range. I missed that move but into lunch it had retraced almost the complete move. What caught my eye were several things.

• It had found support on the morning range bar.
• there was a nice 2 wave pullback

Especially the pace development in the pull back was nice. It fell hard at first, rounded of near support, but then again made three pushes down, each penetrating the previous low less then the one before, hence the ’rounding off’ appearance. When the reverse head and shoulder like pattern formed (a very tight 30 min dummy bar) I entered with a very tight stop. (first red line, the thin blue line is my entry)

2R was around the first resistance level so I took half off, keeping the rest with a break even stop. The higher thin red lines are the trailing stops, but I did not enter the last one in TWS, figuring I’d see what would happen.

The dark red line was my second target but it did not make it so I closed the remaining position at exactly 5 minutes before market close.

Solar Power to the rescue… I missed most of the shorting ‘fun’ today, had a few scratch trades. In the afternoon the market started a reversal and I spotted FSLR. It had a 1 min 2 wave pullback and a nicebase after that. As the market was consolidating at the same time it was the ideal spot to enter, but I did not expect it to run right to my target. It did try to scare me out by retesting my entry, but I stayed put and closed all at first resistance, previous days low (thin red dotted line)

Today I did not feel very in sync with the market. When I shorted the market went up, or the market went down but my short did go up. It was a struggle, but there were one or two nice trades that saved the day.

Cenx was one of them. It gapped up, just like many stocks this morning, but came back rather harsh. It consolidated for quite a while, forming a nice little base. When it broke down I shorted and covered partials at 2R. Trailing the rest until the large bullish 5 min candle at support. Closed above that candle.

Somehow my natural inclination is to go long stocks. Once a bear market start I am usually in trouble first, until I readjust.

Today I had a few good trades, IBN was one of them, but I kept anticipating the market reversal.

I traded CIEN long twice, only to be stopped out. It was all very obvious, but it was a matter of trading what is, instead of trading what I want to happen.

IBN was a great trade. The market gapped down and IBN too. The gap down corrected with 2 up waves, the second one slower in pace than the first wave up. See the pink lines below the chart.

The second wave up bounced into the 5 min 20 SMA, that was falling. My first target was the equal move, it got there pretty quick. I took a partial at that target and trailed the rest. I was hoping for a lot more, but I just got a tiny bit more. 3.5R is nothing to sneeze at and it was a nice offset to my anticipating a reversal.

There must be a reason for the expression: “The market always does what the trader expects, but never WHEN he expects it.” This was the case. After giving up on a reversal, the market reversed…

That is what I should do in a market like this. It is a bear market, but I am still in bull market mode… looking for long trades. I should more often take a shot at a short.

At least I made some money today.

Click the chart for an overview

This was a very nice trade. But there could have been more in it. A lot more!

CNQ gapped up and formed a nice base. Just before 11.00 pace changed. The first wave down was the steepest. The second wave was a lot slower and the third wave stayed even more in the upper end . As price was approaching the rising sma 20(5min, light grey line) I entered a long position. I took all of at 2R, instead of partials. Don’t ask me why!

This would have been a great stock to stay in all day. I deviated from my rules and it cost me! Well better this then deviating from the rules and making more money, becuase it reinforced bad habits.

The POT trade was not a really nice trade. I don’t know why but when I entered I had a feeling that the consolidation was not enough. But then I thought, ‘but what if it will go anyway and I’ll miss the move?’. Usually if I think that before entering a trade its going to turn out bad. This case was no exception. My best trades often are those that I really don’t want to enter but I can’t think of a valid reason not to… In this case I ignored this knowledge, traded it and traded it badly.
I gave this trade more leeway then I usually do and had to take a full loss.

click the chart

The currency (FOREX) market is hot. The $ is stone cold. The daily EURUSD chart looked like it could breakdown, but instead it broke to the upside with a lot of conviction. Crazy conviction! But in crazy markets there is often money to be made and the EURUSD was no exception today!

 

Click on the chart for an overview

DLTR gapped up out of a daily consolidation. After a two wave correction during the day I spotted it when it showed the beginning of a 1 min bull flag. I was impatient in entering and cheated on target. There was only 30 minutes of the trading day left and the market showed some weakness

APOL had a nice 2 wave correction on the 1 min chart. I was a bit late and did not get the best entry.This one just failed to hit target and I got taken out on the trailing stop. Result 0.5R

click the chart for a complete view

PTR gapped up, was strong all day and during lunch showed a bit of a pace change in the range. I entered long when it broke the most recent swing in the range. Altough this one did hit target, I did not get a fill and was stopped out on the trailing stop.

Result: + 0.5R.

It was quite a difficult day with the market gapping down, rallying, breaking down and in the end rallying to the highs of the day. Still, it was an inside day in the in the QQQQ, and though the SPY and DIA broke previous days highs, it proved to be too much resistance to break with conviction. Todays result, 2R, is nothing to write home about but at least it was positive!

• big momentum move
• consolidation
• red lines are initial and trailing stops
• 1st pink line is long entry ( 8.67)
• 2nd pink line is partial exit (8.93)
• 3rd pink line is closing trade (9.25)
• risk was 0.13, reward was (0.26 + 0.58)/2= 42 cts or more than 3R