Pattern Examples

I probably shouldn't be posting these to the public but since this is a public blog and I use it to post my thoughts and progress and I'll do it anyway.

 

The charts below are examples of what it is I'm looking for. All these charts were from today's action. One thing I noticed which I blogged about earlier is that the wicks are very long on almost all of my losers. For the most part the candles below in my examples from today are tight and concise in a steady trend. Volume and momentum are both increasing. My PRGO trade today had a pretty crazy quick trend which I mistakenly took as a pattern I thought would work out. It had some pretty long wicks. So anyway I wanted to post this so I can come back and get a refresher on what it is I'm looking for.

 

Below is VDSI

 

Below is SCON

 

Below is TIVO

 

Below is INCY

PRGO- Fine Tuning Selection

Had a failed trade this morning but I noticed something about my losers and winners. A lot of my winners have the same characteristics as my losers but the one thing that's different is that my winners don't have very long wicks. The candles are really tight with short to almost no wick. Yet, my losers will have very long wicks and are a little bit more volatile as their increasing on volume and good momentum. So, I'm going to add another rule to my plan and only trade stocks with short wicks while on the rise. We'll see what happens.

 

Got in at 33.26 with my stop around 32.80 Basically died, again, right after I got in and got stopped out at 32.83. It now looks to be heading up now that I'm out. I seem to be good at picking bottoms, haha. I get stopped then it decides to move without me.

 

Momentum Trading Plan

EDIT: I've developed a new trading plan that I've been following since Early January, 2008.

Check it out here: http://tradeswing.blogspot.com/2008/01/trading-plan-residual-morning-momentum.html

 

 

I've been doing a lot of thinking and going over my past winners and comparing them to my recent losers to see if I can spot some differences and then to eliminate those differences.

 

The loser I had today was moving on weak volume. It had momentum but the volume wasn't there to back it up and sustain the move. I'm going to use this post to write out in detail exactly what it is I'm looking for. I'm going to print this out and lay it on my keyboard and every time I come to my PC to trade, I'll see the plan, read it and keep a fresh image of exactly what it is I'm looking for.

 

Selection Criteria for Winning Candidate:

1) Momentum has to be in a steady up trend. Nothing moving straight up and not dead slow either.

2) The 10 EMA (red line) for intra day volume has to be increasing and showing moderate to heavy white volume. Volume will confirm whether the momentum is good or not.

3) Price action of the stock must be in an up trend, confirming the volume backed behind the increase.

4) Ideally, the stock should be going against the overall trend and should be obvious that the stock is taking off whether the market is up or down.

5) The wicks on the candles should be very small and/or almost non existent. Do not trade long wicked candle patterns. Pattern should be tight and concise.

 

Entry:

1) If above criteria has been met then don't hesitate to buy at market value.

 

Exit:

1) Stop will be placed in a spot below entry that's not too far away but not too close so that I'll be stopped out immediately. This will completely discretionary. Risk will always be 0.5% of total equity unless a 2.5% draw down has been reached, at that point risk will be cut to 0.25%

2) When a 2% increase has been reached from the point of entry, stop will be raised to break even. The selling of 50% of shares at this 2% increase will be mandatory.

3) When the 2% mark has been passed and the price action is still increasing, the stop will be trailed continuously until stopped out. Once the stop has been increased, it won't be lowered for anything.

Perfect Setup

Ok, this is what I'm looking for. It's a great setup of what I planned on doing yesterday.

 

1) Stock was up pre market

2) Support confirmed by the 3rd tick from the open on huge amounts of volume

3) Stock rallies to resistance and falls back on pre established support level

4) Stock rallies off support and breaks through resistance on huge amounts of volume and settles on top of resistance and makes it support

5) Market conditions were solid. Great economic news came out and volatility was down 5% from yesterdays huge sell off.

 

 

 

This second chart below is LDK. I paper traded this roughly a week ago and the setup is almost identical.

 

1) Stock was up pre market

2) Stock confirms pre-established support levels with huge amounts of volume at the open

3) Stock rallies and hit's established resistance and falls to confirm a new support level. Bearish and Bullish Candles bottomed out at the same levels

4) Rallies and breaks through resistance first level of resistance and hits second level and pullbacks.

5) Q's fell at open but rallied just before 7am PST

 

 

 

All I need to do now is have the patience to wait and wait for this setup to happen while ignoring all these stocks that rally around me. That's going to be the hard part.

Trading Plan

I'm glad I've finally come to this realization that what I've been doing was, to put it lightly, the worst thing I could be doing, trading without a full plan. I knew all along I needed one, but I couldn't develop one that was custom tailored to me. I've developed a plan that I like and it's a very simple system.  I won't know how this will perform so I'll have to stick with it religiously for a few months to see how it's working out but I think it'll do ok.

 

Stock Selection:

Step 1: 9 day EMA must be either heading up to cross the 21 day or have just crossed the 21 day EMA on a 6 month chart in 1 day increments

Step 2: Plot out support and resistance levels on the 6 month chart

Step 3: Stock must be close to support levels and far enough from resistance to potentially make a decent profit

Step 4: If the stock can't make a 3.0 risk/reward, lower percentage of portfolio to use (see Stop Loss) if neither option can work, abandon stock

Step 5: Volume must be increasing over the 200 day EMA as the 9 day EMA is starting to cross the 21 day EMA.

Step 6: If everything checks out start looking for an entry and exit point

 

Entry:

Step 1: Zoom in to a 5 day intra day chart to plot potential support/resistance

Step 2: 9 Day EMA must be close to crossing or has crossed the 21 day EMA.

Step 3: Stock must be close to support and far away enough from resistance to potentially make a 3:1 profit

Step 4: Depending on where the stop is, figure out how many shares to buy

 

Stop Loss:

Step 1: Place stop based on volatility of the stock and support levels on a 3 day chart

Step 2: 2% stop (maximum) use 50% of portfolio

Step 3: 4% stop (maximum) use 25% of portfolio

 

Exit:

Step 1: Zoom in to a 5 day chart and see where the action is in relation to support/resistance

Step 2: When the stock gets close to either 6 month or 3 day resistance, raise stop to a level of profit taking but not enough to get stopped out right away

Step 3: Either get stopped out and move on or let the stock run until I do get stopped out (keep raising stop)

 

 

 

This will be my base plan. I'm sure I'll be fine tuning this over time but this is what I'll be working with.

Couple Consolidation Setups

I needed to take today off. I feel like I've been going way overboard with my trades these last couple weeks and my results prove it. Today was good though, I felt like I regained my objectivity again and I can see and think clearly. I'm also feeling a lot more confident with myself.

 

I came across MDT and I like where it's at right now. It had a nice little shot upward and looks to be in a very tight trading range, about a 1% range for the last few days. Looks like it's "taking a break" before it shoots again. I don't have any intra day data for this guy so I can't really fine tune my entry and stops but whatever my entry is my stop will be 1 point below that if I buy under 57. I'll have an alert go off at 57.08 which could be the starting point of it taking off if it gets to those levels. The low alert will go off 56.70 so I can start looking for a good entry point.

 

edit: Well, looks like MDT just hit my low for the day post market and is now at 56.56 on just under 150k shares. I'll setup a new low at 56.30 and if it drops below 55.50 I won't touch it anymore

 

MDT:

 

TSU is basically the same setup. Had a nice move up, and looks to be going neutral or in a resting period. It's also riding some decent resistance at 41 levels so if it can break those I think it'll give it that much more boost to the upside. I don't have intra day data for this either so I'll be setting up alerts to go off to let me know when potential entry points might be present.

 

I'll have a high alert go off at 40.95 and a low go off at 40. I'll set a stop roughly 1 point below entry just like the MDT setup, depending on if I can get in and at what price.

 

 

Oh yeah, I'll be using imageshack.us now to host my pics as I'm sure there's some people who has to adjust their browser because my pics are so big (to me their small) and it'll help me consolidate all my chart pics and keep them online instead of having 100's of JPEG charts on my PC.

Human Scanner

I went over my watch list of about 150 stock charts. I set them up in 5 day intra day charts and looked at each one and picked the setups I liked just by a glance. If I had to spend more than 7-10 seconds thinking if it looked good I just closed it and moved on. The ones I liked I saw immediately and they seem to be stocks that have had an upward trend, pulled back, consolidated, and ready to test new highs. The tickers listed below are the ones I like. I'll be breaking these down into hopefully a top 15 then breaking them down to a 10 then 5 then 3. When I get the 3 I'll post up charts and reasoning on why I picked them. I'll watch these Monday and see what happens.

 

The tickers with an asterisk next to them caught my attention more than others. I can't say why at the moment but I must of seen something I liked, lol.

 

Stocks In Play (watching for these to hit my targets, If I see an opportunity to get in I'll take it)

CSUN: Low @ 6.80 High @ 7.07

DRL: Low @ 29 High @ 32.00

ERJ: High @ 44.30

JDSU: Low @ 13.90 High @ 14.20

NVDA: Low @ 34 High @ 35.50

QQQQ: High @ 50.45

TWM: Low @ 63 High @ 65.25

 

Stocks on the Hot Seat (these have priority over In Play because of better setups and risk/reward if they hit my targets)

LNDC: Low @ 13.85 High @ 14.10

This is has light risk but the potential for profits could go either way. The red line represents huge amounts of resistance. That's going to be a hard level to break, but if it can break it and then turn the resistance and establish those levels as support it could blow to the upside. The 13.80 level is very strong support which looks like a good entry point represented by the green line. The black line would be my stop loss.

 

LOCM: Low @ 5.72

I like this is a lot because lately it's been riding this strong level of support at 5.70. It has some light resistance ahead represented by the yellow lines but I think the risk/reward makes up for this. Over the last 6 months this 5.70 level has been significant in support, which seems to me to be the time to get in. Target price would be around 6. That would be a potential 5% gain with a risk of 1.2% with our stop loss being at 5.60

 

RDN Low @ 22 High @ 24

Red line is my exit point, Green line is my entry point, Black line is my stop loss. Roughly 11% gain with a 3% stop loss.

 

 

edit: Alright, I drew out support and resistance based on the 6 month action and plotted it on the 5 day chart. Now I'll be plotting out support/resistance on the 5 day action to get some more guides. Then I'll figure the risk/reward ratio based on those setups and at the same time start dwindling them down.

edit2: Support/Resistance are drawn out and I've got them down to the amount shown above.

edit3: Ok, I have my Dream Team of stocks so to speak, haha. These stocks fit my personal criteria and coincide with my trading rules so hopefully one of these will get setup and allow me to get in on Monday.

Sept 20th- Setup Recaps

These stocks did ok for the most part. The were was a little rally for the day so that probably helped. Here's a screen shot recap of yesterday and today's action in the same pic. The days are divided by the Black vertical line.

 

CHCG:

The yellow lines represent key levels from the day before and some for today. You can see how today's action bounces around these levels. Didn't quite break out like I thought it would but it doesn't make sense that it would now that I look at the results. It did however break yesterdays high but couldn't get any higher. I'd like to have seen it keep making consistent higher highs but it didn't have the strength.

 

 

DRYS:

Text book breakout. Tight consolidation the day before and you can see right out the gate it pierced the key high level of the day before it took off. Some small pullbacks along the way but it stayed strong. Volume also represents the action. The day before it was light and weak, then on the breakout, volume increased heavily. By far the best one of the group.

 

HTV:

Not much action here. It stayed about neutral for most of the day. Volume is still stable from the day before as well as the action being traded in between key levels from the day before. Couldn't quite break yesterdays high but didn't break yesterdays low either. Neutral for the moment. Maybe it'll show a sign on Monday.

 

NVDA:

This guy didn't do too bad. Broke yesterdays high and sustained a nice peak, came back down to ride yesterdays high as support and fell to about the mid point of the day. Volume picked up a little more to account for the price action which is a good thing to see.