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.

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.

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)

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…

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.

• 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