Morning Breakouts: Trading Plan

I have a few other posts' here dealing with my trading plans in the past. The same idea permeates the plan throughout: morning breakouts. I tend to gravitate toward trading the open of particular stocks that I fancy. What I intend to write here is explain what it is I'm looking for and to record for myself and have a place to come back to and keep myself in check.

The technical part of the charts I'm looking for is quite simple. The stock itself should be in a tight price range over the last 3 months at least and be between 1 and 10 dollars per share. What will attract me is a nice large price spike accompanied by a huge volume spike to confirm the new move. The picture below will serve as an example of this idea.

One can quickly see the exciting price move, represented by the white candle, and the nice tall green volume bar. What I plan on doing after finding this particular pattern is watching the stock pre-market so I can get an idea of how it's behaving and see if there are any certain support or resistant barriers. That's my pre-market routine. My End of Day routine will be to first find this pattern, then look at the intra-day data and see what the support and resistant levels are and measure any pontential moves in between those ranges.

So far, this is a rough sketch of what my trading plan will be as far as selecting stocks go. Later on I'll be fine tuning my entry and exit points more than what I use now, which isn't really worth writing down.

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Trading Plan- Residual Morning Momentum

This is my latest strategy and the one I've been using since the first few days of January 2008. I'm up 13% for Jan and have probably cut the amount of trades I do almost in half. This strategy requires extreme amount of patience and extreme discipline (still developing both of those myself)

 

The idea behind this strategy is that the stocks I pick I expect to continue the momentum from the day before and spill into the opening bell. I'm basically trading with the public because the stocks I trade I want to attract a lot of attention. I want there to be market orders to be placed at the open and have the previous days momentum continue into the morning, where I'll be waiting to ambush. I'll be in a trade for about 10 minutes at the most because the opening spike will probably fade away quickly once the public is in.

 

I don't have a set gain amount I'm looking for. Basically trading off of price action and when I feel is a good time to get out based on the amount of volume is being traded and how active the price is moving. I'm not looking to get out at the top but I am looking to get the bulk of the move if I feel it can continue to move.

 

Selling Criteria

 

edit: When determining when to exit a trade. What alerts to the possibility of selling is when the bottom of the most recent candle is starting to significantly run away from my 7 EMA I should look to either sell half or all of my shares. The gap between my EMA and the bottom of the candle creates a vacuum and the price will get sucked back down to the EMA. When it runs away from that value line, look to sell.

 

If the price is running tightly with the 7 EMA, you're in good shape, but as soon as it moves away and starts taking off. Be cautious.

 

 Stock Selection Criteria

I first go to the scan http://stockcharts.com/def/servlet/SC.scan?s=TXA[T.T_EQ_S]![AS0,20,TV_GT_40000]![TV0_GT_AS1,20,TV*4]![TC0_GT_TC1] and I look at all the NASDAQ and NYSE stocks. Once I see what's available. I go to www.stockta.com and enter in all the available stocks and see what I like. I'm looking for a stock that has shot up in price very high and backed with huge volume. Ideally there should be about 1-3 months of consolidation before the spike. The tighter and more consolidation the better!

 

Once I've picked out all the stocks I like (if there is any) then I put them in my watch list and look at them again with my chart setup (quote tracker). From here I'll narrow it down even more and get rid of the ones that don't look right.

 

I'll go to Google Finance and see if any of my watch list stocks are up after hours and get rid of the ones that are down big. Once I narrow it down again. I'll wait until pre market the next morning. I'll see what's stable and what's up pre market and get rid of the ones that are down. Once the opening bell rings it usually takes about 5 minutes to really see if the stock is going to take off or not. I'm looking for a stock that has a nice sized volume backed behind it and making higher lows.

 

That's all there is to it. It's pretty easy actually. Making money is easy, keeping it is the hard part. Constantly work on improving yourself every day. Doesn't matter how big or small the improvement is. Whatever it takes to get better bit by bit, every day. Whether it's a mental adjustment, a strategy tweak, skipping every other day to trade. Whatever, just improve!

 

Good luck.

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.

CCC- Umm...WTF?

Ok, so I'm looking around for a good trade even though I probably won't find one and I shouldn't be trading anyway. I come across CCC and it showed a patter I've been trading a lot only problem was that I missed the breakout and got in a little late at 12.37

 

I'm sitting here waiting for about an hour for it to do something. I had my stop initially at 12.10 but soon raised it to 12.20 to try and cut some risk. I had a sell order to get rid of 25% of my shares at 12.47 I canceled the order about 10 seconds before it hit 12.47 and I decided to sell my entire position at 12.37 and just get out.

 

lol, I'm a little pissed. I mean, I got in waited and waited for it to show me something as to why I should still be in this trade. I didn't see anything that should keep me in. I sell, and then it shoots up. Oh well.

 

I didn't execute my plan. I got bored and anxious and wanted out. I'm pissed at myself not because I missed out on a nice chunk of cash but like an idiot, I didn't follow my plan. I knew when I wanted to sell for a profit, I knew when I was going to get out if the it goes against me, yet I sold based on my feelings not on my plan and I paid the price.

 

I got in late, and got out early.

 

General Update

I figured I'd post an update of everything going on in the last couple days instead of making a bunch of posts for each topic.

 

First order of business: I bought a second 20inch widescreen monitor. This one will be solely for keeping charts on. It'll hold about 6 charts, each one being a decent size. I'm excited about this. I bought it because I'm getting to the point where it's hard to manage a couple charts, all my watch lists (about 6 of them) and manage my orders on one 20 inch monitor. This new monitor will allow me to keep my watch lists and my charts separate. I can manage my orders and watch lists on my current monitor and the second monitor will be dedicated to at the most, 6 charts.

 

I ordered this off Newegg.com I love this place for computer stuff.

 

Second order of business: I'm going to be writing up a detailed business plan for trading. I have it in my head but I feel it'll be better in the long run if I transfer my thoughts into a hard copy. That way I can go back and review it without having to remember it and I can modify it as I develop as a professional trader.

 

I found two sources with information on how to go about creating a business plan specifically for active traders.

 Trading-Plan.com and Tradingwinner.com are the two sites I've printed out and I'll be going over both of them and jotting down my responses to these questions. I'll then elaborate more on each response and organize them into a well defined business plan that I'll keep and modify over time.

 

Third order of business: This I'm a little bummed about. Basically what happened is today I made my 3rd trade of TWM this week which happens to be a 5 day period. I didn't realize that at the time as I put in my buy order of TWM at 63.88 I put in my stop at 62 but I didn't double check to see if it actually went through and waiting in que. When the time came around for me when I thought it was a good time to sell, I canceled my stop order and put in a market order to sell. Well, I double checked this time around to see if it sold or not, and it never sold. Said I had insufficient resources. Now, I'm stuck with a losing position until probably Monday when I'll try and sell it again.

 

I'm not too worried about the loss though. I adjusted my position size accordingly to where I put my stop and since I'm getting over a losing streak I've cut my risk per trade in half. So, even though I'm in the red, the overall loss is very minimal. If TWM breaks 62 I'll start getting worried but it looks like it's been hovering around 63. So, the situation isn't as bad as it seems, financially anyway.

 

Green arrow was my entry early this morning when I thought it would be a good move to go short. Which it turned out to be good but a few minutes before 9:30 when I wanted to get out, I couldn't. So I was stuck watching TWM go all the way back down and now we're hovering around 63. Needless to say, I was pretty pissed.

 

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.